The Shanwei Shootings and China's Situation

By George Friedman

Last week, a group of Chinese villagers
staged a demonstration against a wind-power project near Shanwei, a town in
Guangdong province about 100 miles from Hong Kong. In the first incident,
protesters blocked access to the site of the wind-power generation project.
The next day, Dec. 6, demonstrators returned. According to Chinese official
reports, they were led by three men -- Huang Xijun, Lin Hanru and Huang
Xirang -- and were armed with knives, steel spears, sticks, dynamite and
Molotov cocktails. Members of the local People's Armed Police fired tear gas
at the crowd, hoping to break things up, but the three leaders rallied the
crowd to continue what, depending on who was telling the story, was either a
protest or attack. According to the description of events given by the
Chinese government, the demonstrators started to throw explosives at the
police as night fell. The police opened fire. Official reports said that
three people were killed, eight wounded.

The protests in Shanwei had
gone on for quite a while before coming to a head last week. The land for
the power project was confiscated a few years ago. The farmers who worked
the land were never compensated for their dislocation. They formally
petitioned for their money in 2004 but were ignored. Public demonstrations
began in August 2005, continuing intermittently. With no compensation
forthcoming, the protests escalated and then exploded, with last week's
incident marking the first reported shootings of demonstrators in China by
official security forces since Tiananmen Square in 1989.

The shooting
is new. The pattern is not. There has been intensifying unrest in China over
the past year -- frequently, as in this case, over issues that have been
simmering for years. This has been particularly true for peasants who have
seen their land confiscated by the government for industrial projects. Money
is issued to local officials by state-owned enterprises and other investment
groups to cover the cost of the land. That money passes through the regional
and local bureaucracies. By the time it should reach the owners, there often
is nothing left; it has been stolen by officials at various levels. No one
denies the farmers' claims to the land, but no one acts to compensate them.
The laborers go from being small farmers to being destitute.

This is
a critical process at the heart of Chinese industrialization. The purchase of
land, including forced sale, is considered necessary for Chinese economic
development. However, Chinese economic development is driven as much by
corruption as by land. The government in Beijing has no particular desire to
see the farmers dispossessed; on the contrary, the money is made available
for delivery to the farmers. But the diversion of funds is hard-wired into
the process. It is one of the primary means for capital formation in China.


One of the paths to entrepreneurship in China is to become a
government official who can use one's public office for personal savings and
networking -- accumulating enough money and useful contacts to move into
business later. With massive expropriations of land over the past decade
designed to facilitate economic growth, the opportunities -- and compulsion
-- to steal money intended for farmers is powerful. In order to hold onto
his job, a government official must maintain a system of relationships with
superiors, colleagues and subordinates. These relationships are based on
money. If the official doesn't find the money to hold his place in the
bureaucracy, he will lose it. Therefore, the diversion of funds is built
into the system.

The Chinese government wants it both ways. On the
one hand, it does not want unrest among farmers. On the other hand, the
Communist Party elite in Beijing live by patronage. They have risen through
the system because of the web of relationships that makes Chinese
industrialization possible. They can, in very specific cases, take action
against cases of corruption. However, a systematic attack on the causes of
corruption is impossible, without a systematic attack on their own
infrastructure.

This is particularly true in rapidly developing
provinces like Guangdong. The interface between the new economy and the old
has become a battlefield. The old economy was land-based: Mao created a
peasant economy that was overlaid by attempts to industrialize. The new
economy regards land as an input into the industrial machine. However, given
the nature of the Chinese political system, the farmers are not simply bought
out -- they are forced off the land. And that can lead to social
explosions.



The
recent events in Shanwei are unique only in that they resulted in gunfire and
death, and because they were brought to light by the anti-Communist media.
After these reports were picked up and widely circulated by the
international media, the government in Beijing acknowledged what had
occurred, adding details that appeared to show that the demonstrators forced
the police into shooting. But later, the government announced that the head
of the police unit involved had been arrested -- which seems to imply that
the story as originally told by the Chinese wasn't altogether accurate. Why
arrest the cop if explosives were being hurled at police?

The
specifics of what happened, of course, have no geopolitical consequence.
What is important is that tensions in China have been rising steadily.
Thousands of demonstrations (74,000, according to figures released last year
by the government) have taken place -- some reportedly violent, if not fatal.
In one
case earlier this year, residents protesting corruption related to land
seizures took control of their town, forcing the police out. The Chinese
government appeared to capitulate to the demonstrators, giving into their
demands -- but weeks later, those who had participated in the rising were
quietly arrested. In another incident, which also turned deadly, brute
squads believed to have been hired by local officials and businesses
attacked protesters. There are numerous other examples to draw from.


Beneath the surface, a number of things are taking place. The
Chinese economy has been growing at a frantic pace. This is not necessarily
because the economy is so healthy, nor because many of these industrial
projects make economic sense. In fact, the government in Beijing has been
very clear that the new projects frequently don't make a great deal of
economic sense, and has been trying to curb them (though it does not
necessarily command obedience in every case from provincial or local
governments). On the other hand, China needs to run very hard to stay in
place. Within what we will call the entrepreneurial bureaucracy -- with
pyramiding, undercapitalized, highly leveraged projects being piled one on
top of the other -- new investment projects are needed in order to generate
cash that stabilizes older, failing projects. Slowing down and consolidating
is not easy when there are bank loans coming due and when money has to be
spread around in order to maintain one's position in the system.


That means that aggressive economic growth is needed. It also means
that massive social dislocation -- including theft of land -- is embedded in
the Chinese system. The flashpoint is the interface between the rapidly
spreading industrial plants and the farmers who own the land. The
bureaucratic entrepreneurs need not only the land, but also the money that
legally is due to the farmers.

China is a mass of dispossessed
farmers, urban workers forced into unemployment by the failure of
state-owned enterprises, and party officials who are urgently working to
cash in on their position. It is a country where the banking system has been
saved from collapse by spinning off bad debts -- at least $600 billion worth,
or nearly half the GDP of China -- into holding companies. This maneuver
cleaned up the banks' books and allowed Western banks to purchase shares in
them, shoring them up. But it also left a huge amount of debt that is owed
internally to people who will never see the funds. Imagine the U.S.
savings-and-loan scandal growing to a size that was nearly half of the
national GDP. As it happened, in the United States the federal government
swallowed a great deal of the S&L bad loans -- but in China, these bad loans
would just about wipe out the country's currency reserves, assuming that the
numbers provided by the government are valid.

Under such
circumstances, it is no surprise that Chinese money is leaving the country,
flowing into the safe havens of U.S. T-Bills or offshore mineral deposits.
Moreover, it is not clear that China's economy is continuing to grow.
China's imports of oil have topped out and, by some reports, have started to
decline -- yet the Chinese are continuing to report unabated growth rates.
How can the economy be growing rapidly while oil imports decline? The
country lacks sufficient energy reserves to fuel such growth, nor can that
level of growth be coming from service industries. At any rate, growth rates
do not by themselves connote economic health. The rate of return on capital
is the ultimate measure of economic success. Anyone prepared to lose money
can generate rapid revenue growth. And anyone facing cash-flow crises due to
debt burden knows how easy it is to slip into revenue-growth obsession. The
Chinese certainly have.

There is, therefore, a tremendous
tension within China's new economy. The root problem is simple: Capital
allocation has been driven by political and social considerations more than
by economic ones. Who gets loans, and at what rates, frequently has been
decided by the borrower's relation to the bureaucracy, not by the economic
merits of the case. As a result, China, as a nation, has made terrible
investments and is trying to make up for it with rapid growth. That is where
things get difficult: As before with Japan and East Asia, the economy is
thrown into a frenzy of growth in efforts to stabilize the system, but that
growth throws off cash that cannot easily be capitalized and therefore is
invested abroad. Meanwhile, bad debts -- stemming from continued investment
into nonviable or unprofitable businesses, for social or political reasons
-- surge, and the government tries to come up with ways to shuffle the debt
around. In other words, the origin of the problem is simple -- but the
evolution of the problem becomes dizzyingly complex.

This leads to
stresses within the advanced economic sector. In China's case, these
manifest as competition between different political factions for access to
the funds needed to maintain their enterprises. But that is nothing compared
to the tension between the new economy and farmers and the unemployed. As the
system tries to stabilize itself, it seeks both to grow and to become more
efficient. As it grows, the farmers are forced to give up their land. And as
it seeks efficiency, industrial workers lose their jobs.

This is an
explosive mix in any country, but particularly so in China, which has a
tradition of revolution and unrest. The idea that the farmers will simply
walk away from their land or that the unemployed will just head back to the
countryside is simplistic. There are massive social movements in play that
combine the two most powerful forces in China: workers and peasants. Mao did
a lot of work with these two groups. Their interests are now converging. The
decisions of the bureaucratic entrepreneurs are now causing serious pain,
which is becoming evident in increasing social unrest. At Shanwei, that
unrest broke into the open, complete with casualties.

The important
thing to note is that both the quantity and intensity of these
confrontations is increasing. While the Western media focus on the outer
shell of China's economic growth -- the side that is visible in Western
hotels throughout major cities -- the Chinese masses are experiencing
simultaneously both the costs of industrialization and the costs of economic
failure. The sum of this equation is unrest. The question is how far the
unrest will go.

At the moment, there does not appear to be any
national organization that speaks for the farmers or unemployed workers. The
risings are local, driven by particular issues, and are not coordinated on
any national scale. The one group that tried to create a national
resistance, Falun Gong, has been marginalized by the Chinese government.
China's security forces are capable, growing and effective. They have
prevented the emergence of any nationalized opposition thus far.

At
the same time, the growth and intensification of unrest is there for anyone
to exploit. It won't go away, because the underlying economic processes
cannot readily be brought under control. In China, as elsewhere, the
leadership cadre of any mass movement has been made up of intellectuals. But
between Tiananmen Square and jobs in Westernized industries, the Chinese
intellectuals have been either cowed or hired. China is now working hard to
keep these flashpoint issues local and to placate localities that reach the
boiling point -- at least until later, when arrests can be made. That is
what they are doing in Shanwei. The process is working. But as the economy
continues to simultaneously grow and worsen, the social unrest will have to
spread.

The discussion about China used to be about "hard" and "soft"
landings -- terms that were confined to economics. The events in Shanwei
raise the same question in another domain, the political. Police shooting
down demonstrators is not an everyday event in China or anywhere else. But
it has happened, and this event didn't just come from nowhere. The question
of soft and hard landings now must be considered more literally than before.


And in China, hard landings over the past couple of centuries have
been bloody affairs indeed.

Send questions or comments on this article to analysis@stratfor.com.

Military Lessons Learned in Iraq and Strategic Implications

By George Friedman

Among the things that emerge from every war,
won or lost, are "lessons learned." Each war teaches the military on both
sides strategic, operational, tactical and technical lessons that apply in
future wars. Many of these lessons are useful. Some can be devastating. The
old adage that "generals are always fighting the last war" derives from the
failure to learn appropriate lessons or the failure to apply lessons
properly. For example, the lessons learned from the First World War, applied
to the Second, led to the Maginot Line. They also led to the blitzkrieg.
"Lessons learned" cuts both ways.

Sometimes lessons must be learned
in the middle of a war. During World War II, for example, the United States
learned and applied lessons concerning the use of aircraft carriers, the
proper employment of armor and the execution of amphibious operations. The
Germans, when put on the defensive, did not rapidly learn the lessons of
defensive warfare on a strategic level. The Allies won. The Germans lost.
There were certainly other factors at work in that war, but the speed at
which lessons are assimilated and applied is a critical factor in
determining the outcomes of wars. It has been said that success in war is
rooted in the element of surprise; it follows that overcoming surprise is
the corollary of this principle.

Lessons are learned and applied most
quickly at the tactical level. Squads, platoons and companies, which are most
closely in contact with the enemy and have the most immediate thing at stake
-- their very lives -- tend to learn and adapt the most quickly. One measure
of morale is the speed at which troops in contact with the enemy learn and
change. One measure of command flexibility is the extent to which these
changes are incorporated into doctrine. In addition, a measure of command
effectiveness is the speed at which the operational and strategic lessons
are learned and implemented. It usually takes longer for generals to
understand what they are doing than it does sergeants. But in the end, the
sergeants cannot compensate for the generals, or the politicians.

In
the Iraq war, both sides have experienced pleasant and unpleasant surprises.
For instance, the Americans were pleasantly surprised when their worst-case
scenario did not materialize: The Iraqi army did not attempt to make a stand
in Baghdad, forcing the U.S. military into urban attritional warfare. And the
Iraqi insurgents were pleasantly surprised at the length of time it took the
Americans to realize that they were facing guerrilla warfare, and the
resulting slowness with which the U.S. military responded to the
attacks.

On the other hand, the Americans were surprised by the
tenacity of the insurgency -- both the guerrillas' ability to absorb
casualties and the diffusion of their command structure, which provided
autonomy to small units yet at the same time gave the guerrillas the ability
to surge attacks at politically sensitive points. And the insurgents had to
have been surprised by the rapid tactical learning curve that took place on
the U.S. side, imposing a high cost on guerrilla operations, as well as the
political acumen that allowed the Americans and others to contain the
insurgency to the Sunni regions.

In a strategic sense, the Iraqi
insurgents had the simpler battle problem. Insurgency has fewer options. An
insurgency must:

1. Maintain relations with a host population that
permits for regrouping, recruitment and re-supply. While this can be
coerced, the primary problem is political, in the need to align the
insurgency with the interests of local leaders.

2. Deny intelligence
to the enemy by using the general population to camouflage its operations --
thus forcing the enemy to mount operations that simultaneously fail to make
contact with insurgents and also alienate the general populace.
Alternatively, if the enemy refuses to attack the population, this must be
used to improve the insurgents' security position.

3. Use the
target-rich environment of enemy deployments and administrative centers to
execute unpredictable attacks, thereby increasing the enemy's insecurity and
striking at his morale.

The guerrillas' purpose is to engender a sense
of psychological helplessness in their conventional enemy, with the goal of
forcing that enemy to abandon the fight or else to engage in negotiations as
a means of defense.

The guerrilla does not have to win militarily. His
goal is not to lose. The essence of asymmetric warfare is not merely the
different means used to fight the war, but the different interests in waging
the war. In Vietnam, the fundamental difference between the two sides was
this: The North Vietnamese had a transcendent interest in the outcome of the
war -- nothing mattered more than winning -- whereas for the Americans,
Vietnam was simply one interest among a range of interests; it was not of
transcendent importance. Thus, the North Vietnamese could lose more forces
without losing their psychological balance. The Americans, faced with much
lower losses but a greater sense of helplessness and uncertainty, sought an
exit from a war that the North Vietnamese had neither an interest nor a
means of exiting.

Now, Vietnam was more of a conventional war than
people think. The first principle of insurgency -- drawing sustenance and
cover from a local population -- was a major factor before the intervention
of main-line North Vietnamese units. After that, these units relied more on
the Ho Chi Minh Trail than on the local populace for supplies, and on
terrain and vegetation more than on the public for cover. It was at times
less a guerrilla war than a conventional war waged on discontinuous fronts.
Nevertheless, the principle of asymmetric interest still governed
absolutely: The North Vietnamese were prepared to pay a higher price than
the Americans in waging the war, since they had greater interests at
stake.

The United States fought a counterinsurgency in Vietnam. It
should have tried to reformulate the conflict as a conventional war. First,
the Ho Chi Minh Trail was the strategic center of gravity of the war, and
cutting that line would have been a conventional move. Second, operating in
a counterinsurgency mode almost guaranteed defeat. Some have argued that the
U.S. difficulty with counterinsurgency warfare is its unwillingness to be
utterly ruthless. That is not a tenable explanation. Neither the Nazis nor
the Soviets could be faulted with insufficient ruthlessness; nevertheless,
the Yugoslav Partisan detachments drained the Nazis throughout their
occupation, and the Afghan guerrillas did the same to the Soviets.
Counterinsurgency warfare is strategically and tactically
difficult.

The problem for occupying forces is that -- unlike the
insurgents, who merely must not lose -- the counterinsurgents must win. And
because of asymmetric interests, time is never on their side. The single
most important strategic error the Americans made in Vietnam was in assuming
that since they could not be defeated militarily, they might not win the war,
but it was impossible that they could lose it. They failed to understand the
principle of asymmetry: Unless the United States won the war in a reasonable
period of time, continuing to wage the war would become irrational. Time is
on the side of guerrillas who have a sustainable force.

The United
States did not expect a guerrilla war in Iraq. It was not part of the war
plan. When the guerrilla war began, it took U.S. leaders months to
understand what was happening. When they did understand what was happening,
they assumed that time was at the very least a neutral issue. Having
launched the war in
the context of the Sept. 11 attacks, the Americans assumed that they had
interests in Iraq that were as great as those of the insurgents.

But
as in other guerrilla wars, the occupying power has shown itself to have
less interest in occupying the country than the resistance has in resisting.
It is not the absolute cost in casualties, but rather the perception of
helplessness and frustration the insurgent creates, that eats away at both
the occupying force and the public of the occupying country. By not losing
-- by demonstrating that he will survive intense counterinsurgency
operations without his offensive capabilities being diminished -- the
insurgent forces the occupier to consider the war in the context of broader
strategic interests.

One of two things happens here: The occupier
can launch more
intense military operations, further alienating the general populace
while increasing cover for the insurgents -- or, alternatively, attempt to
create a native force to wage the war. "Vietnamization" was an attempt by
the United States to shift the burden of the war to the Vietnamese, under
the assumption that defeating the North Vietnamese and Viet Cong was more in
the interests of the South Vietnamese than in the interests of the Americans.
In Iraq, the Americans are training the Iraqi army.

The U.S. option
in Vietnam was to impose a conventional model of warfare -- much as the
United States did in Korea, when it ignored the guerrillas and forced the
war into a battle of conventional forces. It is even more difficult to
impose a conventional war in Iraq than it might have been in Vietnam under
an alternative American strategy. Here, attacking the insurgents' line of
supply is a tenuous strategy -- not because the line does not exist, but
because the dependency on it is less. The insurgents in Iraq operate at
lower levels of intensity than did the Vietnamese. The ratio of supplies
they need to bring into their battle box, relative to the supplies they can
procure within their battle box, is low. They can live off the Sunni
community for extended periods of time. They can survive -- and therefore,
in the classic formulation, win -- even if lines of supply are cut.


The Sunni guerrillas in Iraq have all of the classic advantages that
apply to insurgency, save one: There are indigenous forces in Iraq that are
prepared to move against them and that can be effective. The Shiite and
Kurdish forces are relatively well-trained (in the Iraqi context) and are
highly motivated. They are not occupiers of Iraq, but co-inhabitants. Unlike
the Americans, they are not going anywhere. They have as much stake in the
outcome of the war and the future of their country as the guerrillas. That
changes the equation radically.

All wars end either in the
annihilation of the enemy force or in a negotiated settlement. World War II
was a case of annihilation. Most other wars are negotiated. For the United
States, Vietnam was a defeat under cover of negotiation. That is usually the
case where insurgencies are waged: By the time the occupation force moves to
negotiations, it is too late. Iraq has this difference, and it is massive:
Other parties are present who are capable and motivated -- parties other
than the main adversaries.

The logic here, therefore, runs to a
negotiated settlement. The Bush administration has stated that these
negotiations are under way. The key to the negotiations is the threat of
civil war -- the potential that the Shia, the main component of a native
Iraqi force, will crush the minority Sunnis. There is more to this, of
course: The very perception of this possibility has driven a number of
Sunnis to cooperate in efforts to put down the insurgency, looking to secure
their future in a post-occupation Iraq. But it is the volatility of
relations between the ethnic groups underlying the negotiations that can
shift the outcome in this case for the United States.

All war is
political in nature. It is shaped by politics and has a political end. In
World War II, the nature of the combatants and the rapid learning curve of
the Allies allowed for a rare victory, in which the outcome was the absolute
capitulation of the enemy. In Vietnam, the nature of the war and the failure
of the American side to learn and evolve strategy led to a political process
that culminated in North Vietnam achieving its political goals. In Iraq, the
question is whether, given the combatants, the complete defeat of either
side appears likely. Even if the United States withdraws, a civil war could
continue. Therefore, the issue is whether the conflict has matured
sufficiently to permit a political resolution that is acceptable to both
sides. As each learns the capabilities of the other and assimilates their
own lessons of the war, we suspect that a political settlement will be the
most likely outcome.

Send questions or comments on this article to analysis@stratfor.com.

America Unplugged

By Peter Zeihan

The presidency of George W. Bush is
failing.

Love him or hate him, Bush has had the most dramatic
international impact of any U.S. president in a generation. But as Bush's
fortunes ebb, his ability to control events in Washington and much further
afield are fading as well. Geopolitics, like nature, abhors a vacuum, and
there is no shortage of players hoping to profit from the political
equivalent of U.S. self-flagellation.

American Paralysis


In August, we wrote that the United States was beginning to move "Beyond
the War on Terrorism." We argued that the United States had achieved the
bulk of what it had set out to do in first containing, and then pursuing and
dismantling, al Qaeda.

We put forward that Iraq was a central
feature of that plan, and that despite the ongoing horrors there, the broad
strategic goals that the United States set out to achieve had indeed been
accomplished. Saudi Arabia, Syria and -- to a lesser extent -- Iran were all
cooperating with the United States in destroying al Qaeda as a strategic
threat. The organization's offensive abilities degraded, from the ability to
pull off a Sept. 11, 2001, attack that reshaped the world, to a series of
metro bombings in London that did not even produce a glimmer of
consideration within the U.K. government that policy should change.
Terrorism, of course, continued to occur around the world, but its ability
to dictate U.S. foreign policy had largely evaporated. All that was left was
some hardly insignificant cleanup, and the United States could then get
around to the serious work of dealing with the real issues: boxing in China
and boxing up Russia.

But Iraq has not flowed gently into epilogue,
and the final agreements that seemed so tantalizingly close in August remain
elusive. In the interim, the American citizenry has grown weary of the
conflict -- in which the number of American dead has now passed 2100 -- and
Bush's popularity has suffered as a result.

But the real inflection
point of this presidency was not Iraq; rather, it was Hurricane
Katrina. Rightly or wrongly, Bush was perceived not just as unprepared
for a major hurricane strike, but also as oblivious to the seriousness of
the humanitarian disaster in New Orleans. This perception solidified the
opposition of the U.S. left, denied the president any help from the American
center and cracked the heretofore unified American right. The result was a
president in danger of losing his core supporters, without whom no president
can effectively rule. Similar circumstances condemned past statesmen such as
Wilson, Truman, Johnson and Nixon into the unenviable company of failed
presidents.

Since Katrina, the Bush administration's fortunes have
only slid further, with three critical defeats standing out most glaringly.
First, its primary congressional ally, former House Majority Leader Tom
DeLay, has been indicted for fundraising improprieties. Second, the
administration's efforts to shuttle Harriet Miers into the Supreme Court
resulted in a break within the Republican Party. Third, the vice president's
chief of staff -- Lewis "Scooter" Libby -- has been indicted for disclosing
the status of undercover intelligence officers to the press, a charge that
may well be pressed against political mastermind Karl Rove, and perhaps even
the vice president himself.

What this amounts to is that the Bush
administration has alienated the Republican Party's religious wing and those
who value national defense above all else. Between that and the loss of
DeLay, the president's star has fallen so far that he can no longer demand
meetings with key legislators; he must negotiate for them. His foreign
policy agenda is weighed down by the albatross of Iraq, and since
congressional Republican leadership is keeping its distance from the
president, his legislative agenda has not so much as budged in months.


Even if Bush manages to recover, we are eyeing what will be at least six
months of extreme administration weakness. If Bush does not recover,
however, stretch that out to until Jan. 20, 2009. A lot can happen in three
years.

And, as chance would have it, the United States is not the
only power currently facing a crisis of confidence and capabilities.


European Paralysis

The failure of the Dutch and French
referendums on the EU constitution during the early summer was more than
simply the failure of a vote; it signaled a failure of the very idea of
Europe as a supranational entity. Ultimately, the European Union
institutions as we know them today are a result of France's efforts to
transform the countries of Europe into a platform over which it could rule
and from which it could project power. France has always wanted to be able
to punch above its weight in the international arena, and Europe was to be
its vehicle for achieving that goal.

Yet in May, the French rejected
the EU constitution -- and with it, the French
vision for Europe.

In large part, the French rejected that
vision because they realized it had become unachievable. The other European
states were not willing to become French vassals, and once the French
realized that they were merely another member in -- and therefore merely
another subject of -- European institutions, French nationalism trumped the
French desire for French Europeanism. As the union expanded, part of being
European came to mean that France does not always get its way. Ultimately,
that is something that the French found unacceptable.

And this was
hardly the limit of what has gone wrong in Europe recently.

The
British enjoy a rebate from the EU budget for the years in which they
contribute more to the EU than they receive back (which is every year). The
French, who convinced the Germans to back them, are guaranteed a full
quarter of all EU agricultural subsidies even though they are among the
union's richest members. With the addition of 10 new -- poorer -- states
into the EU in 2004, the two standing policies are now in direct financial
conflict.

Put another way, for the French to continue to enjoy their
gravy train, either the British have to give up their rebate or all those new
poor states need to give up some of the EU development funds -- the one part
of the EU budget that is actually productive. Family spats over money are
always the most vitriolic, and this one has reopened issues about the
fundamental nature of the EU as well as discussion over the benefits and
problems of enlargements, both past and future.

With the very idea
of a European entity with a global reach DOA, the ability of "Europe" to act
abroad becomes limited to the capabilities of its constituent powers. And in
addition to these powers' lacking Washington's normal reach, they are nearly
as politically truncated as the United States.

As France reels from
the EU constitution defeat, it now also has to deal with the cultural,
political and economic aftermath of three weeks of race
riots. The United Kingdom's position on reducing the EU budget has
radically reduced its influence within Europe. But more importantly, the
Blair government recently
lost its first Parliament vote -- typically an early sign that a prime
minister is about to attach an "ex-" to his title.

Finally, there
is Germany, where Chancellor
Angela Merkel has just wrapped up her first full week on the job. The new
chancellor has more of a chance than any other European leader to get a fresh
start, by seeking a rapprochement with Europe's smaller states as well as the
United States. Yet even if she is wildly successful in her foreign relations,
and even if her awkward left-right coalition is not sunk by inter- and
intra-party bickering, this will still take a great deal of time. No, Europe
is as out of the international picture as the United States is for the
moment.

Of Absent Cats and Busy, Busy Mice

The result
is an unfettered international system.

The world has been gradually
sliding toward true unipolarity for the past 15 years. France's view of the
European Union was one attempt to stem that evolution, as are China and
Russia's on-again, off-again attempts to forge an unwieldy coalition of
powers that contains states such as Brazil, India or Iran. Ultimately,
however, geographic location dictates that all such attempts will fail.


The European Union could never be a political superpower because the
British, Irish, Spanish, Portuguese, Estonians, Latvians, Lithuanians,
Poles, Hungarians, Czechs, Slovaks, Slovenes, Romanians, Bulgarians, Greeks,
Italians, Dutch, Danes, Swedes and Finns really see no point to letting Paris
or Berlin dictate their domestic economic or foreign security policies. The
idea of a multipolar world is similarly unworkable. Adjacent land powers are
only able to ally when both face imminent destruction or one is in a clearly
subordinate position -- something that makes us watch Chinese-Russian
relations with increasing interest -- while a quick glance at the trade
flows of states like Brazil and India clearly show that any political
ambitions for setting up an anti-American alliance are limited predominantly
to rhetoric. It often does not take a great deal of effort for the United
States to use these characteristics to prevent such alliances -- geographic
features alone nearly assure an American preponderance of power -- and so,
since the end of the Soviet Union, U.S. power has increased step by step
relative to other powers.

But what happens when that dominant power
finds itself engrossed by internal developments? When this happened to
Russia during President Vladimir Putin's first term, Central Europe was
swallowed by NATO and the European Union; the United States moved troops
into Central Asia; China -- not Russia -- got its fingers into Kazakhstan's
energy resources and encouraged a thousand migrant feet to bloom in Siberia;
and color revolutions broke Moscow's grip on Ukraine, Kyrgyzstan and
Georgia.

But now the United States -- indeed the entire West -- is
in a world of its own.

Eventually the period of inattentiveness will
end, even if it takes until the next election, so time is a precious
commodity. The question dominating the thoughts of national leaders who
often find themselves at loggerheads with Washington is: How do I maximize
my position before Washington stops staring at its own navel?

Down
in Venezuela, President Hugo Chavez has always done his best to take
advantage of Washington's short attention span, and the next few months will
be no exception. For him the mode is the Bolivarian Revolution -- and using
his ample oil revenues to extend his political reach by manipulating
elections in Bolivia and Honduras, supporting indigenous movements in
Ecuador, and likely funding Colombia's new united left wing, the Democratic
Alternative Pole. Across the border in Brazil, President Luiz Inacio "Lula"
da Silva is far less ambitious, but he is certainly reaping the rewards in
terms of public popularity by killing U.S. efforts to create a Western
Hemispheric free trade area -- the keystone of Washington's Latin American
policy.

In Asia, Pyongyang has got to be wallowing in glee. Anytime
the United States is distracted, North Korea tends to be able to foment
crises that get concessions from its neighbors. Beijing, while undoubtedly
equally happy, will be far more circumspect in its efforts. For China, a
U.S. disengagement allows it more time to whip its economy into shape. That
means slowing efforts to amend its currency policy; the yuan
peg will remain, and China need not worry overmuch about the United
States taking advantage of the social unrest that Beijing's softly-softly
economic reforms trigger.

Across the Middle East, where U.S. foreign
policy has been most active since the Sept. 11 attacks, the effect will be
far more noticeable among enemies and allies alike.

Israeli Prime
Minister Ariel Sharon will have no reason to do more than give the
occasional polite nod to American requests, allowing him to impose his
own version of a final settlement on the Palestinians; it will be one
they do not much care for. Pressure on Saudi Arabia and Egypt to amend their
political systems will either evaporate or be waved away. Syria has just
gotten the diplomatic equivalent of a get-out-of-jail-free card (and thus
has largely gotten away with the assassination of former Lebanese Prime
Minister Rafik al-Hariri and the maintenance of its position of superiority
in Lebanon). And if you thought the Iranian nuclear program issue was
agonizingly annoying before, just wait.

There is the very deadly
possibility that Iraq will go from bad to worse. With American pressure
ignorable, Syria, Saudi Arabia and Iran have little reason to cajole groups
to come to the table and every reason to manipulate events to their own
likings -- which, in all cases, involves making the American experience
miserable. U.S. power can no longer guarantee that the Kurds, Shia and
Sunnis will meet, much less hammer out a workable power-sharing accord,
leaving Washington -- still -- holding the bag and handing out concessions
to prevent the situation from degrading further still. And of course, Iraqi
guerrillas are hardly finished.

Although it may be out of the
headlines, the United States is still pursuing the al Qaeda leadership in
the Afghanistan-Pakistan border region, which is extremely
difficult without the active participation of Pakistani forces -- forces
that in the best of circumstances need to have their feet held to the fire
to ensure cooperation. Without some robust American arm twisting, Pakistani
President Gen. Pervez Musharraf has little incentive to pursue a policy that
could well bring his government down around him -- not to mention put a
bullet in his head.

The Russian Moment

But by far
the country with the most pressing need to act -- and coincidentally, the
most room to act -- is the one that the United States has been pressing the
hardest: Russia.

Unlike U.S. efforts to contain Venezuela or block
a rising China, with Russia the United States is playing for keeps. The
Soviet Union was one of only three states that have ever directly threatened
the United States -- the other two being the British Empire and Mexico. The
Soviet Union also came as close as any power ever has to uniting Eurasia
into a single integrated, continental power -- the only external development
that might be able to end the United States' superpowership. These little
factoids are items that policymakers neither forget nor take lightly. So
while U.S. policy toward China is to delay its rise, and U.S. policy toward
Venezuela is geared toward containment, U.S. policy toward Russia is a
simple as it is final: dissolution. Ergo Russia's
string of deep and rapid defeats.

But suddenly, the pressure has
evaporated.

We are sure to see much more traditional Russian thinking
in efforts to construct a multipolar world: attempts at hiving France and
Germany away from the rest of Europe; heavy diplomatic engagement with
would-be powers like India, China and Venezuela; a resumption of technical
efforts with Iran's nuclear power program; reinsertion of Russian influence
into North Korea and Syria. But ultimately all of these strategies represent
old thinking. What concrete results does Russia really get from having a
"strategic partnership" with India, aside from some arms sales? Political
hegemony in places like Syria reduces Russian strategy to the diplomatic
equivalent of a monkey wrench. The threat to Russia is far deeper, and so if
Russia is to use its breathing room to achieve anything of lasting use, it
needs a change of mind-set -- and that is precisely what is under way.


On Nov. 14 two men -- Dmitry
Medvedev and Sergei Ivanov -- were promoted to deputy prime
ministerships. Both are extremely canny politicians and have repeatedly
demonstrated the ability to think outside of traditional Russian paradigms.
For them, the pre-eminent concern is forestalling further Russian losses and
resurging Russian power. Stymieing U.S. initiatives -- the default position
for most Russian authorities who have been in positions of power since
Soviet days -- is only of high priority when those initiatives actually
affect Russia.

Put another way, the new deputy prime ministers
think that Russian policy should be a bit more thought-out than simply
shouting "nyet" whenever the Americans are up to something. For them issues
such as North Korea, Syria, India, Brazil and even Iran are of much lower
priority. The real issues are items closer to home: Uzbekistan, Ukraine, the
Baltics. It is less about attempting to maintain the long-outdated
international balance of the Cold War that Russia's nationalists crave, and
more about more traditional Russian concerns of securing the borders by
expanding them -- or at minimum expanding Russia's "zones of comfort."


And so it is in these borderlands where Russian efforts will intensify
in the months to come. A key tool in the Russian advance will be Gazprom,
the state natural gas monopoly, which incidentally boasts one Mr. Medvedev
as its chairman of the board. On Nov. 29, Gazprom's deputy CEO announced
sharp price increases for a range of former Soviet states, including the
Baltics, Ukraine and Georgia. In the case of Kiev, such hikes will likely
rip the bottom out of the Ukrainian basket.

A number of politicians
throughout the Commonwealth of Independent States are in the process of
discovering that not only is the Bear not asleep, but the Eagle is too
preoccupied to help shield them from its prowling. In some places -- such as
Poland and the Baltics -- where progress away from Russia is an established
fact, this will only deepen animosity toward Russia. But in others where the
situation is much more tenuous -- most notably Ukraine -- it is leading to
efforts at accommodation and will result in a resurgence of Russian
influence.

While the economic stick is the order of the day in the
western reaches of the former Soviet Union, the southern flank is seeing
primarily the military carrot. Central Asian states are many things, but
"stable" and "politically inclusive" are certainly not on that list. In a
region where Islam is the dominant religion and Afghanistan is but a short
walk -- literally -- away, the result has been a government demonizing of
militant Islam as a justification for authoritarianism.

Yet efforts
to maintain authoritarian control have reduced the options of any opposition
forces to one: operating outside the system. Imagine the shock in Central
Asian capitals when their policies gave life to the fears buried within
their rhetoric. Islam is now a bastion of political -- and sometimes
militant -- opposition, and a few sporadic Islamism-inspired attacks have
shaken Central Asian political establishments to their core. Suddenly the
United States' "revolution" efforts have gone from being perceived as an
interesting side note to a deadly threat, and Russia is happy to pick up the
pieces of Washington's post-Sept. 11 Central Asia security policies for
itself. U.S. forces have already been ushered out of Uzbekistan, and a U.S.
diplomatic and economic presence is really only welcome in Kazakhstan -- and
even there only on specific terms.

What is particularly notable about
this renewed Russian push is how much room there is for progress. American
policy in Russia's near abroad has largely been dependent upon the border
states' natural antipathy toward Moscow, and not on building stable
institutions or links between these regions and the wider world. This makes
vast tracts of territory easily accessible to the Russians, whose
infrastructure remains hardwired into the entire border region. Without
consistent Western attention, geographic realities can easily reassert.
Ukraine -- unlike Romania -- is simply on the wrong side of the Carpathians
for it to be otherwise.

Send questions or comments on this article to analysis@stratfor.com.

Iraq: The Battle in the Beltway

By George Friedman

With President George W. Bush's poll ratings
still in the doldrums, the debate in Washington has become predictably
rancorous. For their part, the Democrats continue to insist that Bush lied
about weapons of mass destruction to justify the invasion of Iraq, despite
the fact that Bill Clinton launched Operation Desert Fox in 1998 on the
basis of similar intelligence. The Bush administration didn't manufacture
evidence on WMD: If evidence was manufactured, it was manufactured during
Clinton's administration -- and the Democrats know this. On the other hand,
the Bush administration has slammed the Democrats' criticism of the war,
charging one Democratic congresswoman -- a congresswoman who served for 37
years in the Marine Corps (and was awarded the Bronze Star and two Purple
Hearts while in Vietnam) -- with cowardice for advocating a U.S. withdrawal
from Iraq. Republicans know better.

The current debate is making both
sides look stupid. But lest we despair about the fate of the republic, it
should be remembered that political debate in the United States has rarely
been edifying and, during times of serious tension, has been downright
incoherent. What is important about the current debate is not so much its
content -- there is precious little of that -- as the fact that it serves as
a barometer of the current situation in Washington as well as in Iraq. What
the debate is telling us is that we have come to a defining moment in the
war and in U.S. policy toward the war. That means that it is time to step
back and try to define the root issues.

Intelligence Failures and
Guerrilla War

Whatever the origin of the war -- and Stratfor
readers are aware of our
views on why the war was begun -- we can pinpoint the moment at which the
Bush strategy first ran into trouble. In mid-April 2003, just a few weeks
after the fall of Baghdad, guerrilla attacks in the form of small bombings
began to take place. By May 2003, attacks were occurring daily. It started
to become clear that a guerrilla war had been launched.

When people
talk about intelligence failures, they inevitably speak about the WMD issue.
That was trivial, however, compared to the failure of the U.S. intelligence
community to discover that the Baathists had planned for continued warfare
after the fall of Baghdad. Indeed, they did not even resist in Baghdad.
Understanding that defeating the United States conventionally was
impossible, they focused on mounting a guerrilla war after U.S. forces had
occupied the country.

The guerrilla campaign was not spontaneous. It
came together much too quickly and escalated far too efficiently for that to
be the case. The guerrillas clearly had access to weapons caches, possessed a
rudimentary command, control and communications system, and had worked out
some baseline tactics. They were too widely dispersed in their operations to
be simply a pick-up game. Somebody had set these things in place. That meant
that someone should have detected the plans.

There were two reasons
for this intelligence failure. First, detecting the kinds of preparations
being made is not easy. The United States was heavily dependent on networks
created by the Shiite leader Ahmed
Chalabi, and the guerrillas were Sunnis. We suspect that the sourcing
prior to the war blinded the United States to preparations being made in
Sunni territory. Second, and more important, Washington had a predetermined
concept about Iraq and Iraqi resistance, which many shared.

The
United States had fought the Iraqis during Desert Storm, and emerged with a
complete lack of respect for the Iraqi forces. Just as the Israelis had
developed a concept of the capabilities of the Egyptian forces in the 1967
war -- a concept that proved to be disastrously incorrect by the 1973 war --
so the Americans had reached a set conclusion about Iraqi forces. Moreover,
they had drawn political conclusions: Saddam Hussein's regime was unpopular
and its fall would be greeted with emotions ranging from indifference to
joy. Thus, the Americans focused on what they expected to be a conventional
military campaign that would create a blank slate on which the United States
could draw a new political map.

There was another side to this. The
American experience in guerrilla warfare was fixed in Vietnam. The lesson of
Vietnam was that the United States was defeated by two things: first,
sanctuaries for the guerrillas that the United States could not attack --
including a complex logistical system, the Ho Chi Minh Trail -- and second,
the terrain and vegetation of Vietnam, which prevented effective aerial
reconnaissance and placed U.S. forces at a tactical disadvantage. Iraq's
topography did not offer sanctuary or cover. Therefore, a full-scale
insurgency would be impossible to mount.

The United States had failed
to learn important lessons from the Israeli situation, in which guerrilla
warfare -- incorporating wildly unconventional means such as suicide bombers
-- was waged without benefit of sanctuary or clear supply lines. But more
importantly, the Americans had failed to take into account that while Iraq
could not field a large, effective conventional force, guerrilla warfare
requires a much smaller number of troops. Moreover, they failed to consider
that the behavior of forces defending Iraq's seizure of Kuwait during Desert
Storm might be different than the behavior of forces resisting American
occupation of Iraq proper.

Intelligence failures occur in every war,
and this one was certainly much less significant than, for instance, the
failure at Pearl Harbor. But this failure was conjoined with the
administration's assumption that, given the character of the Iraqi soldier
and the nature of Iraqi society, Iraqi resistance would not be sustained.
That error, coupled with the intelligence failure, generated today's crisis.
The problem is an intelligence failure overlaid by a
misconception.

Insurgency and Inertia

If intelligence
failures are a constant reality in war, the measure of a military force is
how rapidly it recognizes that a failure has occurred and how quickly it
adjusts strategy and tactics. In this case, the administration's concept
about Iraq blocked the adjustment: The Bush administration's position, as
pronounced by Donald Rumsfeld, was that the guerrillas did not constitute an
organized force and that they were merely the "dead-enders" of the Baathist
government. This remained the administration's position until July
2003.

That meant that for about three months, as the guerrillas
gained increasing traction, there was no change in U.S. strategy or tactics.
Strategically, Washington continued to view Iraq as a pacified country on
which the United States could impose a political and social system, much as
it did with Japan and Germany after World War II. This had a specific
meaning: The Baathists had been the ruling party in Iraq; therefore, driving
former Baathists out of public life, a process that mirrored what happened in
Germany and Japan, was the strategy. Tactically, since there were no
guerrillas -- only criminals and remnants of the former regime -- no
military action had to be taken. U.S. forces remained in an essentially
defensive posture against a trivial threat.

The decision to force the
Baathists out of public life had two effects. First, it drove the Baathists
closer to the guerrillas. They had nowhere else to go. Second, it stripped
Iraq of what technocrats it had. After a generation of Baath rule, anyone
with technical competence was a member of the Baath party. That meant that
the United States had to bring in contractors to operate Iraq's
infrastructure. But if we assume that the Baathists over time could be
replaced by other Iraqis with sufficient training, then this was a rational
policy.

The administration realized its error in June and July 2003.
It replaced CENTCOM commander Gen. Tommy Franks earlier than scheduled with
Gen. John Abizaid. The problem was that the insurrection, by then, had taken
root. It is not clear that there was ever a point when the insurrection could
have been stopped, but certainly, the three-month lag between the opening of
the guerrilla war and the beginning of an American response had made it
impossible to simply stop the insurrection.

At the same time, the
insurrection had a basic weakness: It was not an Iraqi insurrection, but a
Sunni insurrection. To underscore a point that most Americans seem unable to
grasp, most of Iraq never rose against the Americans. The insurrection was
confined to the Sunni regions and -- despite some attempts to expand it --
the Shia and Kurds were not only indifferent, but completely hostile, to the
aspirations of the Sunnis. If the American Achilles' heel was its inability
to force a military solution to the insurrection, the weakness of the Sunnis
was their inability to broaden the base of the insurrection.

However,
once it was established that the insurrection was under way, the American
conception collapsed.

Reaction: Negotiations

First,
the view of the Iraqis as essentially passive following the war gave way to
a very different picture: The Sunnis were in rebellion, and the Shia were
confidently preparing the way for a government they would dominate. Iraq was
not Japan. It was not a canvas on which a contemporary MacArthur could
overlay a regime. It was not even an entity that could be
governed.

This led to the second shift. The United States could not
unilaterally shape Iraq. The other side of this coin was that the United
States had to make deals with a variety of Iraqi factions -- and this meant
not only the Shia, Sunnis and Kurds, but also factions within each of these
groups. Indeed, the United States had to deal not only with the Iraqi Shia,
but also with the Iranians, who had real influence among them. The United
States had to try to split that community -- which in turn meant dealing
with former Baathist officials who were supporting the fight against the
United States. In other words, the United States had to deal with its
enemies.

When you don't win a war, you can end it only through
negotiations, and those negotiations will take place with the people you are
fighting -- your enemies. At the first battle of Al Fallujah, the Americans
made their first public deal with the Baathists. Indeed, the American
strategy turned into a political one: U.S. forces were fighting a holding
battle with the guerrillas while negotiating intensely with a dizzying array
of people that, prior to July 2003, the United States would have had
arrested.

The American concept about Iraq is long gone. The failure
to identify the intentions of the Baathists after the war is now history.
But the essential problem remains in Washington's public
posture:

1. The administration cannot admit what is self-evident:
it does not have the ability, by itself, to break the back of the Sunni
insurrection. To achieve this, the United States needs help from
non-jihadist Sunnis -- Baathists -- as well as the Shia. U.S. troops cannot
achieve the mission alone.

2. In order to get this help, the United
States is going to have to make -- and is, in fact, making -- a variety of
deals with players it would have regarded as enemies two years ago, and must
make concessions that would seem to be unthinkable.

These negotiations
are constant. The United States is doing everything it can to get former
Baathists into the political process -- people who were close to Hussein. It
is working intently with people like Ahmed Chalabi who were close -- some say
very
close -- to the Iranians. It is cutting deals left and right like a
Chicago ward boss.

This is, of course, precisely what the United
States must do. Its best chance at a reasonable outcome in Iraq is to split
the Sunni community between jihadist and Baathist, and then use the
Baathists to counterbalance the Shia -- without alienating the Shia. It
takes the skill of an acrobat, and the fact is that Bush has not been too
bad at it. The war itself has become a side show. U.S. troops are not in
Iraq to win a war. They are there to represent U.S. will and to act as a
counterweight in the political wheeling and dealing. War is politics by
other means, so being shocked by this makes little sense. Still, the numbers
of U.S. troops are irrelevant to the real issue. Doubling them wouldn't help,
and cutting them in half wouldn't hurt. The time for a military solution is
long past.

Battle in the Beltway

The problem with the
hysteria in Washington is this: In all the negotiations, in all the
promises, bribes and threats, the one currency that counts is the American
ability to deliver. The ability to craft a deal depends on the ability of
Bush to threaten various factions, and to make guarantees that can be
delivered on. There is a pretty good chance that some sort of reasonable
settlement can be achieved -- not ending all violence, but reducing it
substantially -- if the United States has the credibility it needs to make
the deals.

The problem the Bush administration has -- and it is a
problem that dates back to the beginning of the war -- is its inability to
articulate the reality. The United States is not staying the course. It has
not been on course -- if by "course" you mean what was planned in February
2003 -- for two years. The course the United States has been on has been
winding, shifting and surprising. The fact is that the administration has
done a fairly good job of riding the whirlwind. But the course has shifted
so many times that no one can stay it, because it disappeared long
ago.

Having committed the fundamental error -- and that wasn't WMD --
the Administration has done a sufficiently good job that some sort of working
government might well be created in Iraq in 2006, and U.S. forces will
certainly be withdrawn. What threatens this outcome is the administration's
singular inability to simply state the obvious. As a result, the Democrats
-- doing what opposition parties do -- has made it appear that the Bush
administration is the most stupid, inept and incompetent administration in
history. And the administration has been reduced to calling its critics
cowards.

The administration's position in Iraq is complex but not
hopeless. Its greatest challenge is in Washington, where Bush's Republican
base of support is collapsing. If it collapses, then all bets will be off in
Iraq. Bush's challenge is to stabilize Washington. In fact, from his point of
view, Baghdad is more stable than Washington right now. The situation inside
the Beltway has now become a geopolitical problem. If Bush can't pull it
together, the situation in Iraq will come apart. But to forge the stability
he needs in Washington, the president will have to explain what he is doing
in Iraq. And he is loath to admit, from his own mouth, that he is making
deals with the enemy.

Send questions or comments on this article to analysis@stratfor.com.