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Ten Years of Failed Transition to Democracy in Mexico: The Struggle between Modernity and Feudalism in Society

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Antonio Purón was a senior partner of McKinsey & Company in the Mexico Office until January 2008.  His 27 year practice concentrated on serving clients in the energy, chemicals and petrochemicals sectors in Mexico, the United States, Argentina, Brazil, Chile and Venezuela.  In addition, he led work for clients in the financial institutions, consumer goods, retail, water, construction, transportation, manufacturing and telecommunications industries. 

In Mexico he served government and contributed to the modernization and deregulation of the national electric system and the E & P division of the national oil company, and has collaborated in the evolution of the country's basic infrastructure, such as gas distribution, municipal water utilities, ports, toll roads, and solid waste disposal.  His practice comprises both working for authorities and state-owned companies as well as with private investors interested in participating in sectors recently deregulated.

In the industrial and financial sectors he led projects for major national groups and global corporations, focused on strategic planning and growth, operations improvement, organization and process redesign, optimization and diversification of their product and market portfolios in light of the new competitive environment.  In the consumer goods industry he served the leading national companies and global corporations in projects aimed at designing their growth strategy through mergers and acquisitions, partnerships, entry to new markets as well as into other businesses and categories, and e-commerce, valuation of companies, and organizational restructuring.  In retail he collaborated with the major building materials and supermarket chains in Mexico helping to design their growth strategy, improve the performance of their process management, direct sales force management and develop and implement marketing and pricing strategies.

He has authored contributions on productivity and International competitiveness, and collaborated with several higher-education, cultural, arts, non-for-profit and social service institutions.  He is a founding member of Metropoli 2025 and of the board of Universidad Iberoamericana, Promujer, the National Arts Museum and of Instituto de Fomento e Investigación Educativa. He has authored several articles on urban productivity.

Prior to joining McKinsey, Mr. Purón worked at the Department of Special Studies of Ingeniería Panamericana, at the Instituto Mexicano del Petróleo, and at Polioles, S. A., where he had experience in planning, technological evaluation, systems development and project control.

He holds a B.S. in Chemical Engineering (Summa Cum Laude) from the Universidad Iberoamericana, and was a candidate for the master's degree in Chemistry.  He also earned an M.B.A. from Stanford University.

Since retirement Antonio is devoting the bulk of his time to three projects he is passionate about:  1) Giving a high-quality alternative to children currently dependent an poor-quality public basic education so that they can become competitive in a global society, 2) Influencing public policy to revert the current vicious circle of agricultural policies-extreme poverty-migration and 3) Changing the monopolistic control that political parties' leaderships exert on the political process in Mexico.

He is currently an associate fellow of CIDAC (independent think-tank) and participates in the boards of Banco Santander, Nadro, S.A. (JV of McKesson in Mexico), Munal (National Arts Museum), Progresemos (agricultural microfinance) and Centro de Colaboración Cívica (chapter of Partners for Democratic Change).

 

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Antonio Puron Associate Fellow CIDAC Mexico & Director Emeritus, McKinsey & Company Speaker
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The Pseudo-Democrat's Dilemma: Why Election Observation Became an International Norm

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Susan Hyde is an Assistant Professor of Political Science and International Affairs at Yale University, where she is affiliated with the MacMillian Center and the Institute for Social and Policy Studies. She earned her Ph.D. from the University of California, San Diego in 2006, and has held fellowships at the Brookings Institution in Washington, D.C. and Princeton University's Niehaus Center for Globalization and Governance. Her research interests include international influences on domestic politics, elections in developing countries, international norm creation, election manipulation, and the use of natural and field experimental research methods. Her current research explores the effects of international democracy promotion efforts, and her research has been published in World Politics, Comparative Political Studies, Perspectives on Politics, the Journal of Politics. She has recently completed a book entitled The Pseudo-Democrat's Dilemma: Why Election Monitoring Became an International Norm.  She has served as an international observer with several organizations for elections in Albania, Indonesia, Nicaragua, Pakistan and Venezuela, and has worked for the Democracy Program at The Carter Center. She teaches courses on international organizations, democracy promotion, the global spread of elections, and the role of non-state actors in world politics.

 

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Susan Hyde Assistant Professor Political Science and International Affairs Speaker Yale University
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The Student Movement and the Struggle for Democracy in Venezuela

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Roberto is one of the leaders of Venezuela's student democracy movement.  This past April, at The World Movement for Democracy in Jakarta, Roberto received the International Democracy Award on behalf of student movement leaders in Venezuela.  WMFD provided the following commentary on Venezuela's student movement: "The student reaction to the TV closing and referendum to amend the constitution was motivated not by political ideology or partisan politics, but by the notion that "in democracy all sides should be welcome."  Despite government provocation and calls for physical attacks on students, the movement continues to focus on the peaceful promotion of democracy by training observers to monitor elections and encouraging young people to register to vote.

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Roberto Patino Leader Speaker Venezuela's Student Federation
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Larry Diamond: How to save democracy

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Bush gave democracy promotion a bad name, Larry Diamond writes in Newsweek. The new administration needs to get it right.

The new U.S. President will face more than one kind of global recession. In addition to the economic downturn, the world is suffering a democratic contraction. In Russia, awash with oil money, Vladimir Putin and his KGB cronies have sharply restricted freedom. In Latin America, authoritarian (and anti-American) populism is on the rise. In Nigeria, the Philippines and once again in Pakistan, democracy is foundering amid massive corruption, weak government and a loss of public faith. In Thailand, the government is paralyzed by mass protests. In Africa, more than a dozen fragile democracies must face the economic storm unprepared. And in the Middle East—the Bush administration's great democratic showcase—the push for freedom lies in ruins.

In the past decade, the breathtaking democratic wave that swept the world during the final quarter of the 20th century reversed course. Making democracy work proved harder than bringing down authoritarian rule. And receptive peoples everywhere were alienated by the arrogance and unilateralism of President George W. Bush's approach, which associated "democracy promotion" with the use of force and squandered America's soft power. Advancing democracy abroad remains vital to the U.S. national interest. But the next president will have to craft a more modest, realistic and sustainable strategy.

It's easy today to forget how far freedom has advanced in the past 30 years. When the wave of liberation began in 1974 in Portugal, barely a quarter of the world's states met the minimal test of democracy: a place where the people are able, through universal suffrage, to choose and replace their leaders in regular, free and fair elections. Over the course of the next two decades, dictatorships gave way to freely elected governments first in Southern Europe, then in Latin America, then in East Asia. Finally, an explosion of freedom in the early '90s liberated Eastern Europe and spread democracy from Moscow to Pretoria. Old assumptions—that democracy required Western values, high levels of education and a large middle class—crumbled. Half of sub-Saharan Africa's 48 states became democracies, and of the world's poorest countries, about two in every five are democracies today.

This great shift coincided with an unprecedented moment of U.S. military, economic and cultural dominance. Not only was America the world's last remaining superpower, but U.S. values—individual freedom, popular sovereignty, limited government and the rule of law—were embraced by progressive leaders around the world. Opinion surveys showed democracy to be the ideal of most people as well.

In recent years, however, this mighty tide has receded. This democratic recession has coincided with Bush's presidency, and can be traced in no small measure to his administration's imperial overreach. But it actually started in 1999, with the military coup in Pakistan, an upheaval welcomed by a public weary of endemic corruption, economic mismanagement and ethnic and political violence. Pakistan's woes exposed more than the growing frailty of a nuclear-weapon state. They were also the harbinger of a more widespread malaise. Many emerging democracies were experiencing similar crises. In Latin America and the post-communist world, and in parts of Asia and Africa, trust in political parties and parliaments was sinking dramatically, as scandals mounted and elected governments defaulted on their vows to control corruption and improve the welfare of ordinary people.

Thanks to bad governance and popular disaffection, democracy has lost ground. Since the start of the democratic wave, 24 states have reverted to authoritarian rule. Two thirds of these reversals have occurred in the past nine years—and included some big and important states such as Russia, Venezuela, Bangladesh, Thailand and (if one takes seriously the definition of democracy) Nigeria and the Philippines as well. Pakistan and Thailand have recently returned to rule by elected civilians, and Bangladesh is about to do so, but ongoing crises keep public confidence low. Democracy is also threatened in Bolivia and Ecuador, which confront rising levels of political polarization. And other strategically important democracies once thought to be doing well—Turkey, South Africa and Ukraine—face serious strains.

This isn't to say there haven't been a few heartening successes in recent years. Indonesia, the world's most populous Muslim country, has become a robust democracy nearly a decade after its turbulent transition from authoritarian rule. Brazil, under the left-leaning Luiz Inácio Lula da Silva, has also strengthened its democratic institutions while maintaining fiscal discipline and a market orientation and reducing poverty. In Africa, Ghana has maintained a quite liberal democracy while generating significant economic growth, and several smaller African countries have moved in this direction.

But the combination of tough economic times, diminished U.S. power and the renewed energy of major authoritarian states will pose a stiff challenge to some 60 insecure democracies in Asia, Africa, Latin America and the former Soviet bloc. If they don't strengthen their political institutions, reduce corruption and figure out how to govern more effectively, many of these democracies could fail in the coming years.

Part of the tragedy is that Washington has made things worse, not better. The Bush administration was right that spreading democracy would advance the U.S. national interest—that truly democratic states would be more responsible, peaceful and law-abiding and so become better contributors to international security. But the administration's unilateral and self-righteous approach led it to overestimate U.S. power and rush the dynamics of change, while exposing itself to charges of hypocrisy with its use of torture and the abuse of due process in the war on terror. Instead of advancing freedom and democracy in the Middle East, 2005 and 2006 witnessed a series of embarrassing shocks: Hamas winning in the Palestinian territories and Islamist parties winning in Iraq; Hizbullah surging in Lebanon and the Muslim Brotherhood surging in Egypt. After a brief moment of optimism, the United States backed away and Middle Eastern democrats grew embittered.

The new American administration will have to fashion a fresh approach—and fast. That will mean setting clear priorities and bringing objectives into alignment with means. The United States does not have the power, resources or moral standing to quickly transform the world's entrenched dictatorships. Besides, isolating and confronting them never seems to work: in Cuba, for example, this policy has been a total failure. This does not mean that the United States should not support democratic change in places like Cuba, Burma, Iran and Syria. But it needs a more subtle and sophisticated approach.

The best strategy would be to open up such places to the freer flow of people, goods, ideas and information. The next administration should therefore start by immediately lifting the self-defeating embargo on Cuba. It should offer to establish full diplomatic ties with Havana and free flows of trade and investment in exchange for a Cuban commitment to improve human rights. Washington should also work with Tehran to hammer out a comprehensive deal that would lift economic sanctions, renounce the use of force to effect regime change and incorporate Iran into the WTO, in exchange for a verifiable halt to nuclear-weapons development, more responsible behavior on Iraq and terrorism, and improved human-rights protection and monitoring. Critics will charge that talking to such odious governments only legitimizes them. In fact, engaging closed societies is the best way to foster democratic change.

At the same time, the United States should continue to support diaspora groups that seek peaceful democratic change back home, and should expand international radio broadcasting, through the Voice of America and more specialized efforts, that transmits independent news and information as well as democratic values and ideas.

In the near term, however, Washington must focus on shoring up existing democracies. Fragile states need assistance to help them adjust to the shocks of the current economic crisis. But they also need deep reforms to strengthen their democratic institutions and improve governance. This will require coordinated help from America and its Western allies to do three things.

First, they must ramp up technical assistance and training programs to help the machinery of government—parliaments, local authorities, courts, executive agencies and regulatory institutions—work more transparently and deliver what people want: the rule of law, less corruption, fair elections and a government that responds to their economic and social needs. This also means strengthening democratic oversight.

Second, we know from experience that these kinds of assistance don't work unless the political leaders on the receiving end are willing to let them. So we need to generate strong incentives for rulers to opt for a different logic of governance, one that defines success as delivering development and reducing poverty rather than skimming public resources and buying support or rigging elections. This will mean setting clear conditions that will have to be met before economic and political aid is doled out to governments.

The third priority is to expand assistance to independent organizations, mass media and think tanks in these fragile states that will increase public demand for better governance and monitor what governments do. This means aiding democratic professional associations, trade unions, chambers of commerce, student groups and organizations devoted to human rights, women's rights, transparency, civic education, election monitoring and countless other democratic activities. Ordinary people must be educated to know their rights and responsibilities as citizens—and be ready to defend them.

While Western countries have provided this kind of aid for more than two decades, economic assistance handed out at the same time has often undermined democracy efforts by subsidizing corrupt, abusive governments. Aid donors should thus strike a new bargain with recipients, telling them: if you get serious about containing corruption, building a rule of law and improving people's lives, we will get serious about helping you. Those that show a real commitment should get significant new rewards of aid and freer trade. Those unwilling to reform should get little, though the West should continue to fight disease and directly help people in dire need wherever they are.

Finally, the new president should keep in mind the power of example. Washington can't promote democracy abroad if it erodes it at home. The contradictions between the rhetoric of Bush's "freedom agenda" and the realities of Abu Ghraib, Guantánamo, torture, warrantless surveillance and boundless executive privilege have led even many of the United States' natural allies to dismiss U.S. efforts as hypocritical. Thus the new president must immediately shut down Guantánamo and unequivocally renounce the use of torture; few gestures would restore American credibility more quickly. The United States should also reduce the power of lobbyists, enhance executive and legislative transparency and reform campaign-finance rules—both for its own good and for the message it would send.

Make no mistake: thanks to the global economic crisis and antidemocratic trends, things may get worse before they get better. But supporting democracy abroad advances U.S. national interests and engages universal human aspirations. A more consistent, realistic and multilateral approach will help to secure at-risk democracies and plant the seeds of freedom in oppressed countries. Patience, persistence and savvy diplomacy will serve the next president far better than moralistic rhetoric that divides the world into good and evil. We've seen where that got us.

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Stemming the democratic recession

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Larry Diamond
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“Emerging democracies must demonstrate that they can solve governance problems and meet citizens’ expectations for freedom, justice, a better life, and a fairer society.”

If the big global story of the 1980s and 1990s was the remarkable expansion of democracy, the bad news of this decade is that democracy is slipping into recession. In the two decades following the Portuguese revolution in 1974, the number of democracies tripled (from 40 to 120) and the percentage of the world’s states that are at least electoral democracies more than doubled (to about 60 percent). Since the late 1990s however, there has been little if any net progress in democracy. To be sure, significant new transitions to democracy took place in countries like Mexico, Indonesia, Serbia, Georgia, and Ukraine. But globally, the democratic wave has been neutralized and is now at risk of being overtaken by an authoritarian undertow, which has extinguished democracy in such states as Pakistan, Russia, Nigeria, Venezuela, Bangladesh and Kenya. In fact, two-thirds (15) of all the reversals of democracy (23) since 1974 have taken place just in the last eight years, since the October 1999 military coup in Pakistan.

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Fortunately, breakdowns of democracy do not always persist for long. Pakistan held remarkably vibrant parliamentary elections in February 2008, in which the party of the autocratic, unelected president, Pervez Musharraf, was crushed. Should the legitimate parties succeed in curtailing Musharraf’s power or forcing him from office, a transition back to democracy could be completed. Thailand has made a similar cycle of return, Bangladesh figures to do so this year, and Nepal is trying to do so. The remote mountain kingdom of Bhutan has quickly gone from absolute to constitutional monarchy, and Mauritania, a desert-poor Muslim-majority country, has also made a democratic transition. But many of the new democracies of recent decades are shallow and in trouble. And freedom has been lurching backwards. By the ratings of Freedom House, last year was the worst year for freedom since the end of the Cold War, with 38 countries declining in their levels of political rights and civil liberties and only 10 improving.

Two other negative trends are important to note. One is the implosion of democratic openings in the Arab world. Under pressure from the George W. Bush administration beginning in 2003, several authoritarian Arab regimes liberalized political life and held competitive, multiparty elections. Then, Islamist political forces made dramatic gains in Egypt and Lebanon and won a majority of seats in Palestine and Iraq — and suddenly the Bush Administration got cold feet. Arab democrats who had surfaced and mobilized felt abandoned and betrayed. The liberal secular politician Ayman Nour, who had the temerity to challenge President Hosni Mubarak in Egypt’s first contested presidential election, languishes in prison three years later. The country’s political opening is now frozen, while more than a billion dollars in American aid continues to flow to the regime.

The second negative trend is that authoritarian states have, unfortunately, learned some of the lessons of democratic breakthroughs of the past decade, particularly the color revolutions that brought down neocommunist autocracies in Serbia, Georgia, Ukraine, and Kyrgyzstan. As a result, they have closed political space, swallowed up or arrested independent media, crushed independent political opposition, sabotaged or shut down innovative uses of the Internet, and sought to block or sever external flows of democratic assistance. Vladimir Putin’s Russia (with its sinister cabal of savvy Kremlin “political technologists”) has blazed the trail in this authoritarian pushback, but China, Belarus, Iran, Azerbaijan, Uzbekistan, and other “post” communist and Middle Eastern dictatorships have followed suit. To make matters worse, China and Russia have drawn together with the Central Asian dictatorships in a new club, the Shanghai Cooperation Organization, to formalize and advance their authoritarian pushback.

To renew democratic progress in the world, we must understand the reasons for the democratic recession. Authoritarian learning is one. Another has been the inconsistent and often unilateralist policies of the United States. Although President Bush has done much to put democracy promotion at the center of American foreign policy and has substantially increased funding for U.S. democracy assistance programs, he has also alienated potential allies in the effort to advance democracy globally by associating democracy promotion with the use of (largely unilateral) force, as in Iraq; by promoting democracy with a tone that was often self-righteous and a style that was too often poorly coordinated with our democratic allies; and then by failing to sustain pressure for democratic change when the going got rough in the Middle East.

Structural factors have also driven the recession of democracy. One has had to do with the global political economy. As the price of oil has gone up, the prospects for democracy have receded. Russia, Nigeria, and Venezuela have all seen their democracies slip back into authoritarianism as oil prices have skyrocketed, sending huge new infusions of discretionary revenue into the hands of autocratic leaders, which they have used to buy off opponents and strengthen their security apparatuses. In Iran and Azerbaijan, surging oil revenues have shored up authoritarian states that once seemed vulnerable.

A second and more pervasive factor has had to do with the performance of the new democracies. Some new democracies are holding their own (like Mali) and even making progress (like Brazil and Indonesia) in the face of enormous accumulated problems and challenges. But the general reality, even in these countries, is that democracy often does not work for average citizens. Rather, it is blighted by multiple forms of bad governance: abusive police and security forces, domineering local oligarchies, inept and indifferent state bureaucracies, corrupt and pliant judiciaries, and ruling elites who routinely shred the rule of law in the quest to get rich in office. As a result, citizens grow alienated from democracy and become susceptible to the patronage crumbs of corrupt political bosses and the demagogic appeals of authoritarian populists like Putin in Russia and Hugo Chávez in Venezuela.

“If democracies do not work better to contain crime and corruption, generate economic growth, relieve economic inequality, and secure freedom and a rule of law, people will eventually lose faith and turn to authoritarian alternatives.”Before democracy can spread further, it must take deeper root where it has already sprouted. Emerging democracies must demonstrate that they can solve governance problems and meet citizens’ expectations for freedom, justice, a better life, and a fairer society. If democracies do not work better to contain crime and corruption, generate economic growth, relieve economic inequality, and secure freedom and a rule of law, people will eventually lose faith and turn to authoritarian alternatives. Struggling democracies must be consolidated, so that all levels of society become enduringly committed to democracy as the best form of government and to the country’s constitutional norms and restraints. Western governments and international aid donors can assist in this process by making most foreign aid contingent on key principles of good governance: a free press, an independent judiciary, and vigorous, independently led institutions to control corruption. International donors also need to expand their efforts to assist these institutions of horizontal accountability as well as initiatives in civil society that monitor the conduct of government and press for institutional reform.

The only way to stem the democratic recession is to show that democracy really is the best form of government — that it can not only provide political freedom but also improve social justice and human welfare.

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Venezuela: Revolutionizing Energy Integration and Democracy

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Ambassador Bernardo Alvarez, formerly Vice Minister of Hydrocarbons in the Ministry of Energy and Mines, is also Professor in the School of Political and Adminstrative Studies at the Universidad Central de Venezuela.In addition to his previous positions in the Ministry of Energy and Mines, he is currently the Venezuelan Representative to the Energy Council of the U.S. and has coordinated different international agreements with the U.S. Department of Energy, the French Energy Task Force, and the Conferences of Ministers of OPEC. He served as Deputy of the National Congress of Venezuela from 1994-1999.

This event is co-sponsored by the Woods Institute for the Environment, The Progam for Energy and Sustainable Development, and the Center for Latin American Studies.

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Bernardo Alvarez Ambassador of the Bolivarian Republic of Venezuela to the United States Speaker
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The Khodorkovsky Case: Human Rights and Rule of Law in Putin's Russia

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Robert R. Amsterdam, founding partner of the international law firm Amsterdam & Peroff, is counsel to the former Yukos head and political prisoner Mikhail Khodorkovsky. For more than 25 years, Mr. Amsterdam has represented corporations and investors in a variety of emerging markets lacking in rule of law, such as Russia, Nigeria, Venezuela, and Guatemala, overseeing complex commercial litigation and advising on political risk. He has delivered speeches before the Carnegie Endowment, the Cato Institute, Georgetown University, University College London, and Chatham House. He has published numerous opinion articles on energy politics and law in the Wall Street Journal, International Herald Tribune, the National Law Journal, the Guardian, and the Independent, among other media. Mr. Amsterdam maintains a blog at www.robertamsterdam.com and is working on a forthcoming book.

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Robert Amsterdam Speaker
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A crude awakening: Five FSI scholars talk to Stanford magazine about energy security

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Judith K. Paulus
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Michael M. May, Michael A. McFaul, Scott D. Sagan, David G. Victor, and John P. Weyant talk to Stanford magazine for the November/December cover story on energy security. It's not our oil dependence that's the problem, say these scholars - it's our vulnerability to oil producers who use revenues for political purposes that work against our own. In this discussion, these five FSI scholars talk about the dynamics of an energy security threat that's more serious than supply disruption, the risks of isolationist solution-seeking instead of collective action, and why we need to come up with good economic incentives for alternative-energy research.

Every day, the United States burns through 20.7 million barrels of oil. China, the world's second largest consumer, uses about 6.9 million barrels a day. Although the United States is the third leading oil producer in the world (behind Saudi Arabia and Russia), its appetite is so enormous that it overwhelms the country's production capacity. Its known reserves, about 21 billion barrels, would supply only enough to keep the country running at full speed for about three years.

So when STANFORD gathered five faculty members to talk about the implications of U.S. dependency on foreign oil, we expected grave declarations of alarm. But their concern did not square with the growing chorus of citizens and elected officials about why reducing this dependency is so important.

On the next five pages, faculty from political science, economics, law and engineering explain why the debate about energy security is missing the point, and what they think needs to be done.

STANFORD: How would you frame the issue of dependency on foreign oil? What should we be concerned about?

David Victor: The problem is not dependence per se. In fact, dependence on a world market produces enormous benefits, such as lower prices. Nor is the problem that energy's essential role in the economy means that dependence must be avoided. The real problem is that energy - oil, especially - doesn't operate according to normal market principles. Something like 75 percent of the reserves of oil and gas are controlled by companies that are either wholly owned or in effect controlled by governments, and there's enormous variation in how those companies perform. Some of them are just a disaster, like [Mexico's state-owned oil company] Pemex, and others can work at world standards, like Saudi Aramco or Brazils Petrobrás. Some of these governments, such as Venezuela, use oil revenues for political purposes that undermine U.S. influence. High prices do not automatically generate new supply or conservation, partly because suppliers can drop prices to undercut commercial investment in alternatives. Second, we have what has become known as "the resource curse." There'sa lot of evidence that the presence of huge windfalls in poorly governed places makes governance even worse. Revenue that accrues to oil-exporting governments is particularly prone to being misspent, often in ways that work against U.S. interests.

Scott Sagan: I agree that calling the problem "energy dependence" and therefore seeking energy independence is the wrong way to think about this problem. Talking about energy independence feeds the xenophobic impulse that occurs all too easily in American politics. And it suggests to other countries that they should seek independence rather than a more cooperative approach. I see very negative consequences politically in the signal that attitude sends. Think about the current nuclear crisis with Iran. Iran claims that it needs independent uranium enrichment capabilities to have "energy sovereignty." Such uranium enrichment production could be used, however, for civilian nuclear power or for making a bomb, creating enormous nuclear weapons proliferation problems. We're feeding into that kind of thinking when we use the same language about independence when referring to oil. And it produces uncooperative effects elsewhere. The Chinese, for example, cut a deal with Sudan as a means of creating energy security for themselves. It inhibits efforts of the international community to encourage that government to behave responsibly.

John Weyant: There is a distinction between dependence, meaning how much of the oil the United States consumes is imported, and vulnerability, meaning how at risk our economy and our social order are to oil-supply disruptions. That vulnerability is defined by how much of the total supply of oil in the world market comes from unreliable sources. So you have to look at oil supply on a global scale, not just in the United States. It's the instability of the supply that affects price.

Victor: I like John's term "vulnerability," and it leads us to various kinds of actions to reduce our vulnerability to the market rather than trying to make us completely independent. One of them has been around since the '70s - building and coordinating strategic stockpiles so that they are supplied into a single world market. Traditionally that could be done by the major Western countries because they were the major oil consumers. One of the big challenges for policy makers today is how to get India and China to think about the operation of this world market in the same market-based way that we think about it, and to get them to build up those stockpiles and coordinate them with our own. There's some evidence that that kind of coordination can reduce our vulnerability.

Weyant: There's this fallacy among the public that if we don't import so much oil, other oil-exporting countries are going to be hurt and we will be unaffected if oil supplies are cut off. But these countries are sometimes major trading partners of allies, and asking those allies to take a hit on our behalf just leads to other economic problems. If the economies in China and Europe and Japan, who are all major trading partners, go down, it affects how much they can buy from us. It's another reason we can't be xenophobic and just look inward on an issue like this. You get these international trade flows outside the energy sector that could be pretty devastating.

STANFORD: Last summer we saw crude oil prices hit $70 a barrel and gas prices went well above $3 per gallon nationwide. That momentarily changed consumer behavior, and reduced demand. Are high prices a good thing?

Michael May: The key factor in normalizing market conditions is assuring the market that high prices are here to stay. Major oil companies like Exxon and bp have been putting their money to other uses than exploration. They have been buying back shares and increasing returns to stockholders because that's the way Wall Street drives them. That might change if prices stayed high. It probably won't be $70 a barrel, but even $50 a barrel as a base price is almost twice the historic average. The extent to which investors become convinced that that's going to be the future average will have some bearing as to how much money they spend on exploration. Toyota and General Motors and others can make hybrids or much more efficient cars, but it takes billons of dollars of investment, and if the price of gasoline goes down, they have less incentive. When gas is cheap, driving an SUV is not such a big deal.

Victor: The reason some of these companies are buying back the shares is not just because of Wall Street but because they don't have a lot of truly attractive opportunities for investing in new production. Most of the oil reserves are either legally off limits for the Western oil companies or international oil companies generally, or they're de facto off limits because they're in places where it's so hard to do business. Although the public is seized by the high price of energy, the major energy companies are seized by concerns that prices are going to decline sharply. If there is a recession, which would dampen demand for energy, or the capacity to produce oil around the world improves, then prices will decline. It has happened in the past. That fear really retards a lot of investment because these investments have a very long capital lifetime, and you need to protect them against low prices over an incredibly long time horizon.

Michael McFaul: It's very important to understand that oil companies owned and operated by governments are not necessarily profit-maximization entities. Take Gazprom, the gas company of Russia. It is closely aligned with state interests, so profit isn't its only motivation. It will use its money for strategic purposes as defined by Vladimir Putin, not as defined by the shareholders of Gazprom. For instance, early in 2006, Gazprom cut off gas supplies to Ukraine, mostly for geopolitical reasons. Why is Hezbollah so well armed? Because of Iran, which uses oil revenue for strategic purposes; it is not used for investing in a company or investing in the market per se. This is part of the problem of the "resource curse" David referred to. If oil is discovered in a country before democratic institutions are in place, the probability of that country becoming democratic is very low. In countries where the state does not rely on the taxation of its citizens for its revenues, it doesn't have to listen to what its citizens want to do with that money. So instead of building roads or schools or doing things that taxpayers would demand of them, they use their money in ways that threaten the security of other countries, and, ultimately, their own.

Victor: It's important that we not overstate the extent to which users of energy are going to respond automatically to high prices, and the personal vehicle is a great example. Fuel accounts for about 20 percent of the total cost of operating a vehicle. Traditionally it's only been 10 or 15 percent, but we are much wealthier today than we were three decades ago when we had the [first OPEC oil embargo]. I think that helps explain a lot of the sluggishness in response in the marketplace. People are buying smaller, more fuel-efficient cars, but that trend will only go so far because there are other factors that determine what kinds of vehicles people purchase. In the United States and most advanced industrialized countries, most oil is used for transportation, where oil products have no rival. It is hard to switch. In most of the rest of the world, oil gets used for a variety of other purposes, including generating electricity. Those markets are probably going to be more responsive to the high price of oil because they're going to have opportunities to switch to other fuels. The United States used a lot of oil to generate electricity in the early 1970s and when that first oil shock came along, essentially all of that disappeared from our market. That's part of the reason why the U.S. energy system responded fairly quickly to the first oil shock, and why changes in behavior are harder to discern in the current crisis. There is no easy substitute for gasoline.

May: If we generally agree that high oil prices, on the whole, are a good thing because they cause investment in more production and more efficient uses of oil, then it would follow that the rapid growth in consumption in China is also a good thing and we should welcome it, right?

Victor: I disagree with that. In effect what we have right now is a "tax" that's been applied to the oil market due to the various dysfunctions of the way it operates and to unexpectedly high demand in the United States and China. The revenue from that tax is accruing to the producers, and if we think about how to get out of the mess here, then what we want to do is in effect apply a tax to the oil products. If we raise the price of these products to reflect the real total cost of our vulnerability to the world oil market, those companies have an incentive to go off and look for alternatives.

May: So you're saying the same thing: that high oil prices, whether from this tax or otherwise, are a good thing.

Weyant: It depends significantly on who is collecting the tax.

McFaul: Yes, the fundamental question is how the money is being spent. If I had high confidence that the money was going to reinvestment, then I could agree that high prices are good, but that's not what is happening. The Soviet Union's most dangerous adventures in the Third World correlated with the high oil prices in the 1970s. You can see the direct effect. And when the prices came down, the Soviet Union collapsed. The same is true with Iran today. They are being very aggressive in the region - in Iraq, in Lebanon, in Afghanistan - trying to become the Middle East hegemon. This would not be happening if they didn't have all these clients - Hezbollah, Hamas, their friends in Iraq - that they can support with millions of dollars. Going back a few decades, where did Osama bin Laden come from? Where did support for the Taliban come from? It came from this tax that David is talking about. If we're talking about security issues and oil, this is much more serious than supply disruption to the United States.

Victor: I agree with Mike 100 percent. If you look at where the revenues are going from Iran, Venezuela and so on, there's a long list of folks who are doing things that are contrary to our interests with the money that ultimately is coming out of the pockets of American consumers. Dealing with that is job one.

STANFORD: So how would you counsel American policy makers? What needs to happen to reduce our vulnerability over the long term?

Sagan: The vulnerabilities we have today should provide an incentive to make some critical investments and to change our thinking, but we're not really doing that. I was quite surprised at how much I agreed with one aspect of the second Bush inaugural address. [He said] let's start talking about our addiction to oil and all the problems associated with that, but I've been completely disappointed with the lack of follow-through. And part of the problem is this notion of energy independence. We need diversity in our research and development spending across the board, on a variety of technologies. We're going to produce energy security to a large degree by finding cooperative solutions that are efficient and secure for many countries working together. We need to see our national security as being very dependent on others and that's not entirely a bad thing.

Victor: There is one cluster of technology that's going to be exceptionally important - electric vehicles. The all-electric vehicle has been kind of a disaster. We tried to do that in California without much success at all. The new set of pluggable hybrid vehicles, which you plug in at night and charge up, are more promising. If such technologies make it feasible to reduce some of the transportation dependence on oil, then markets will be forced to become more "normal" and more responsive. Electric cars and other technologies can help to keep prices lower and ultimately help make the transition completely away from oil over a period of 30 or 50 years.

Weyant: We only think about energy as a nation when prices are high, and so there's a short attention span on the issue. That makes it really hard to sustain a policy that would be rational over the long term. If we're going to have a big R&D program, for example, you need to invest in technologies and sustain the investment over a long time horizon. If you couple this short attention span with our aversion to taxes, at least historically, you end up with policies that are almost designed from the outset to fail. The political tide is turning a little bit so a well-designed tax might be possible. Maybe you don't raise taxes now but you assure that the price of a [hybrid] car won't go below a certain level and that'll help create a little more confidence with the marketplace. If you just focus on research and development without getting the economic incentives right, you come up with all kinds of great gizmos that no one will actually make or use.

McFaul: We've been talking mostly about how to manipulate the market to change people's behavior and I think that's quite right. I can't tell you how many people I saw come out of a Palo Alto theater after seeing Al Gore's movie [An Inconvenient Truth] and jump into their gas-guzzling machines. I would like to tax those machines; use economic tools to change people's behavior in a way the movie didn't. This has to become a public policy issue. It's not right now. Think about the way the market for cigarettes worked in this country 50 years ago, and think of how it is structured now. We have not just taxes but regulation - they can't be advertised on television - and a national campaign trying to educate people about the health concerns. We need a similar effort on this issue.

Sagan: When you watch the Super Bowl you don't see advertisements for cigarettes, but you do for Hummers. There's no attempt at all to educate people about the relationship between these longer-term problems and what you do individually. And that takes decades.

Victor: One of the acid tests for whether the nation is pursuing a coherent energy policy is our policy on ethanol. Ethanol is important because it is a partial substitute for oil-based gasoline. In this country, almost all of the ethanol that is delivered to the marketplace is made from corn, which is economically inefficient. But we do that because the corn grows in the heartland, such as Iowa - an important state electorally. There have been lots of proposals to, for example, erase the tariff on imported ethanol. Brazil produces ethanol from sugar cane and it's much cheaper and more efficient. But the farm lobby always intervenes and these proposals languish, with the result that the U.S. ethanol industry never faces the rigors of world competition. So long as energy is bouncing around lower on the list of priorities, it will be difficult to have a coherent policy.

Weyant: It would be far better if people were willing to bite the bullet and say this is a problem and it's not going to be painless to solve it, but if we play our cards right it's not going to reduce our standard of living much. Convincing the public is really one thing that might be worth some more effort. It's a cacophony to them.

STANFORD: What is your greatest hope and your worst fear with regard to demand for oil?

Victor: My greatest hope is that inside the Chinese government and inside the Indian government people know that this independence view of the world energy market is completely wrongheaded. Maybe that will create an opportunity for the United States and India and China along with other major oil consumers to collectively manage this issue, and the consequences of doing that will spill over onto other areas of cooperation. My greatest fear, in addition to the things we've already discussed, is that the United States will use the oil issue to beat up on the Chinese and the Indians, and that our relationship with those countries, which is already fragile, will make it harder to work together on other things that also matter.

May: My greatest hope is that the United States, China, India and other major countries work together towards a more hopeful future, including improving the global environment, providing a counterbalance to mischief in the Middle East, and promoting a transition to modernization and away from extremism. My greatest fear is that the little termites who are nibbling at what is currently a somewhat sensible Chinese policy will have their way, either because the country's economy slows down - which it will inevitably - or for some other reason, and we'll wind up fighting each other or destroying each other's capabilities.

McFaul: My greatest sense of optimism comes from this discussion, and about what my colleagues in this discussion said about China, because from the surface it looks like there's a much more pernicious policy of China going its own way. I've learned today that in fact there are very reasonable voices within the Chinese government, and I hope that there will be in my own government. My greatest fear is that there will continue to be politicians who control oil revenues who do things that do not serve international security, and I'm speaking not only of Iran. My nightmarish scenario is that 10 years from now Iran, Iraq and, God forbid, Saudi Arabia are controlled by hostile governments that want to use the revenues that we pay them for their oil to harm us. I give that a low probability, but in terms of things that worry me about our security, it's the instability of those oil-exporting regimes.

Sagan: The hope is that this current crisis will provide the right set of incentives to encourage investment in a diverse set of energy R&D programs across the board, and will encourage cooperation between countries in energy research and development. That would help educate and change the culture of the United States away from a gas-guzzling, governor-in-the-Hummer culture. The fear is that this will become yet one more excuse to move to a more xenophobic policy that discourages cooperative international policies.

Weyant: Remember David Stockman, the erstwhile head of the Office of Management and Budget? I ran into him in Washington and he literally said to me, "Don't worry about oil security and disruptions or any of that stuff. We've got battleships to take care of this problem." That shocked me to no end, and my response was "Do you really want to be in that position, where that's your only option?" Your whole response is "We're best in the battleship field and you shouldn't mess with us?" This type of attitude is what worries me the most.

Sagan: We were earlier talking about the resource curse, and this strikes me as an example of the hegemon's curse. To not take the necessary steps on economic policies or energy policies because you think you've got a military backup solution. If our military strength causes us to be passive or uncooperative on the economic or energy front, it will have a boomerang effect that will really hurt us.

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