An out-of-control shadow banking system that's been barely reformed. A housing sector that's been booming but seems primed for a bust. And despite a recent election that seemed to make it clear who was in charge, gridlock and short-term thinking appear to be hobbling the country's political elite. 

I'm talking, of course, about ... China. Well, not me so much as Fitch Ratings, which has turned just a bit bearish on Chinese debt. Why did Fitch downgrade their debt?  

China's growth since the re-launch of market-based economic reform in 1992 has been globally as well as domestically transformative. However, the investment-led growth model faces tightening constraints as the share of investment in GDP approaches the level of domestic savings. The process of rebalancing the economy towards consumption could lead to the economy's performance becoming more volatile.

Some underlying structural weaknesses weigh on China's ratings. Average income at USD 5,988 in 2012 and the overall level of development remain well below 'A' medians despite China's phenomenal growth. Standards of governance lag 'A' range norms according to the World Bank's assessment framework....

Risks over China's financial stability have grown. Credit has grown significantly faster than GDP since 2009. China experienced the second-fastest expansion of credit in real terms, behind only Qatar, between end-2009 and end-June 2012. The stock of bank credit to the private sector was worth 135.7% of GDP at end-2012, the third-highest of any Fitch-rated emerging market.

Fitch believes total credit in the economy including various forms of "shadow banking" activity may have reached 198% of GDP at end-2012, up from 125% at end-2008. Only 55% of new social financing took the form of bank lending in the 12 months to February 2013, down from 76% in 2009. The proliferation of other forms of credit beyond bank lending is a source of growing risk from a financial stability perspective....

The ratings assume there is no significant deterioration of geopolitical risk, for example a conflict between China and Japan or an outbreak of war on the Korean peninsula.

Well, to be fair, despite daily headlines to the contrary, the chance of war breaking out on the Korean peninsula still seems pretty remote. Still, the Financial Times puts this downgrade in context: 

China has faced concerns over debt levels since 2009 when state-owned banks unleashed a surge of loans to power the economy through the global financial crisis. The credit wave succeeded in keeping Chinese growth on track, but it led to bubbly housing prices and also saddled local governments with mountains of loans that they are still struggling to repay.

Beijing has spent the past three years trying to manage these problems. It has waged a long campaign to rein in the real estate sector, raising mortgage downpayments and barring people from buying second homes in the hottest markets. Partly as a result, China recorded its lowest annual growth rate for a decade last year.

Reuters tells a similar tale on China's shadow banking system.   

China's banks are feeding unwanted assets into the country's "shadow banking system" on an unprecedented scale, reinforcing suspicions that bank balance sheets reflect only a fraction of the actual credit risk lurking in the financial system....

But the key question is no longer how much risk banks are carrying. Rather, it's how many risky loans have been shifted to the lightly regulated shadow banking institutions - mainly trust companies, brokerages and insurance companies.

The risk to the overall financial system is not clear, because of insufficient data about the quality of credit in the shadow banking sector.

To be fair to Chinese authorities, they're quite aware of what they're going through. Indeed, the entire China 2030 exercise, as well as last month's China Development Forum, is predicated on the notion that China's growth model needs to change. But as Martin Wolf notes in his column, as China enters "middle income trap" territory, there are significant problems with such reforms: 

First, if expected growth falls from over 10 to, say, 6 per cent, the needed rate of investment in productive capital will collapse: under a constant incremental capital output ratio the fall would be from 50 per cent to, say, 30 per cent of GDP. If swift, such a decline would cause a depression, all on its own.

Second, a big jump in credit has gone together with reliance on real estate and other investments with falling marginal returns. Partly for this reason, the decline in growth is likely to mean a rise in bad debts, not least on the investments made on the assumption that past growth would continue. The fragility of the financial system could increase very sharply, not least in the rapidly expanding “shadow banking” sector.

Third, since there is little reason to expect a decline in the household savings rate, sustaining the envisaged rise in consumption, relative to investment, demands a matching shift in incomes towards households and away from corporations, including state enterprises. This can happen: the growing labour shortage and a move towards higher interest rates might deliver it smoothly. But, even so, there is also a clear risk that the resulting decline in profits would accelerate a collapse in investment.

I'd add only two things at this point. First, as far as I'm concerned, one of the great mysteries in comparative political economy is why it's so bloody difficult for countries like Germany, Japan, and China to change their growth models. High-saving export-oriented economies don't change their ways all that much. To be fair, neither do low-saving, high import countries like the United States. This could be a "varieties of capitalism" story, but that seems ... inadequate as an explanation. 

Second, it's worth remembering that the conventional wisdom about China's government was that annual growth below eight percent a year would spell trouble for the government. The implicit contract over the past three decades was that the Chinese Communist Party would supply the growth in return for political quiescence. The end of high growth would imply that this social contract is in trouble.

Except that China's growth has been below that rate for the last two years and running. During that time, Beijing has weathered one major political scandal, a raft of minor political scandals, and a leadership transition without a hint of regime collapse. So while China's economy does seem to merit greater attention, I'm not sure that China's political economy will trigger the kinds of instability that have been predicted for so long. 

What do you think? 

In today's paper the New York Times has two long stories on the two largest countries in the world: one on China and one on India. What's interesting is that both stories talk about the tensions between national and regional governments -- but their interpretation of the behavior of these local governments is very different.

Let's start with China, where Andrew Jacobs notes that political paralysis at the national level combined with the economic slowdown is causing regional governments to double down on their debt-driven growth:

Local governments, alarmed by a slowdown they fear could lead to mass unemployment and the kind of sluggish growth that can dent political careers, have decided to take matters into their own hands. In recent months, a number of cities have proposed extravagant infrastructure projects they hope will be financed in part by newly liberalized bank loan policies.

Tianjin claims $236 billion will be spent in the petrochemical, aerospace and other industries. Xi’an, home of the famed terra cotta warriors, plans to invest tens of billions of dollars on nine new subway lines. In Guizhou, one of China’s poorest provinces, officials said they hoped to funnel $472 billion into tourism-related development.

In Changsha, the provincial capital of Hunan, officials brag of 12.9 percent growth as they spend billions of dollars on a new subway system, a ring road, an intercity rail line and a pair of bridges to knit together its transportation system.

“We haven’t felt any impact from the crisis in Europe,” said Liu Maosong, chairman of the Hunan Economics Association and an adviser to the Changsha government. “Our guiding philosophy is ‘investment, investment, investment.’ ”

Even if many such projects turn out to be wishful thinking, economists have expressed alarm that municipalities are still chasing debt-financed growth. “It almost scares me to death,” said Mao Yushi, a prominent economist. “Local governments are using the people’s money for investment, but when they can’t repay the banks, the financial system will snap.”

And Liao Jinzhong, an economist at Hunan University, worries that much of the spending is misplaced. “What we really could use is a functioning sewage system,” he said, speaking from his sixth-floor apartment in a crumbling faculty building that has no elevator.

Mr. Liao said he gave frequent lectures at the local party school about the dangerous fixation on propping up growth figures at all costs. He said officials often congratulated him on his frank views.

“But then they admit they can’t change the way they do things,” he said. “Given that the whole system is oriented toward bolstering the careers of officialdom, I just don’t see things changing any time soon.”

Interesting... so because of the political incentives that exist within the Chinese Communist Party, provincial and urban leaders have an incentive to prime their pumps to seek advancement.

Now let's turn to India, where Jim Yardley notes that -- wait for it -- seeming paralysis at the national level and a sagging national economy are causing unaffiliated leaders at the regional and local level to muse about things like forming a third party and compete at the national level. Yardley notes that the likelihood of success is low. What's interesting, however, is the question of why these local leaders are so popular:

Regional bosses, once in decline, are becoming kingmakers again: the squat, sleepy-eyed Mulayam Singh Yadav, who oversees the powerful Samajwadi Party, is even publicly musing about himself as a future prime minister.

“The incentive for every single party from the opposition to the allies is to send a signal that the Congress can’t govern,” said Pratap Bhanu Mehta, president of the Center for Policy Research in New Delhi. “That’s the election plank.”....

“Indian politics will have to live with bargains and negotiations with regional parties,” Ashutosh Varshney, a political expert, said in an e-mail interview. “A third front may or may not emerge, but both national parties will have to negotiate and bargain. That also means that India will find it harder to make firm assertions of power on the international stage, à la China. Its power will grow, but more gradually.”....

In the meantime, India’s regional leaders will continue to press for advantage. Ms. Banerjee is planning a huge demonstration in New Delhi on Monday against the government’s new economic measures. Even as [Bengal Chief Minister Ms. Mamata] Banerjee is often criticized for being intemperate and unpredictable, her influence is undeniable: this week the American ambassador, Nancy Powell met with her privately, just as Secretary of State Hillary Rodham Clinton made a point of visiting her during a trip to India in May.

Other regional leaders are also increasingly powerful national figures. Nitish Kumar, the chief minister of the state of Bihar, has hinted that his regional party could join any coalition that granted his state special status. Naveen Patnaik, the chief minister of Orissa, has expressed support for a third-front coalition. Jayalalithaa, the chief minister of Tamil Nadu, has also spoken suggestively about a new political alliance.

Most of them have won political support by delivering economic growth and, to varying degrees, improved government. This is one reason that even as India’s politics is again fragmenting, some analysts believe that the country’s economic modernization can continue. In recent years, as policy logjams paralyzed the central government, many international and domestic business leaders shifted their focus to negotiating with individual state leaders.

So, if one buys both of these stories, there's an interesting contrast. Both countries appear to be dealing with feckless national leadership and a slowdown in their national economies. In China, regional leaders are pursuing reckless "growth now" policies that could harm the national economy in the long run. In India, it's the competent economic leadership at the regional level that's bailing out a dysfunctional national government (emphasis added).

The thing is, I don't know if I completely buy Yardley's story on India. I've read enough on China to know that Jacobs' assertion about bad regional policy seems to be pretty accurate (not to mention the out-and-out distortions in economic statistics coming from China's provinces) I wish he had pushed a little bit deeper to see exactly how these regional political bosses had delivered better economic growth. If they did it using variants of what China's leaders did -- short-term measures that accelerate growth now at the expense of growth later -- then what's interesting is that regardless of regime type, local leaders can make life hell for national economic policymakers. If, on the other hand, India's regional leaders have done a genuinely better job at governing, then it's a really interesting story.

What do you think? Psst... in this case, by "you," I mean India experts.

Your humble blogger has been banging on about how China's weaknesses are significant and its strengths have been badly overestimated.  So you would think I'd be happy to read this Edward Wong front-pager for the New York Times:

After the economies of Western nations imploded in late 2008, Chinese leaders began boasting of their nation’s supremacy. Talk spread, not only in China but also across the West, of the advantages of the so-called China model — a vaguely defined combination of authoritarian politics and state-driven capitalism — that was to be the guiding light for this century.

But now, with the recent political upheavals, and a growing number of influential voices demanding a resurrection of freer economic policies, it appears that the sense of triumphalism was, at best, premature, and perhaps seriously misguided. Chinese leaders are grappling with a range of uncertainties, from the once-a-decade leadership transition this year that has been marred by a seismic political scandal, to a slowdown of growth in an economy in which deeply entrenched state-owned enterprises and their political patrons have hobbled market forces and private entrepreneurship.

“Many economic problems that we face are actually political problems in disguise, such as the nature of the economy, the nature of the ownership system in the country and groups of vested interests,” said Zhang Ming, a political scientist at Renmin University in Beijing. “The problems are so serious that they have to be solved now and can no longer be put off.” 

Wong didn't even delve into the state of China's big banks, which Bloomberg's Jonathan Weil examines and concludes that they're facing a world of hurt, or China's civil-military conundrum, which I blogged about earlier in the week. 

So China is doomed, right?  The bubble is gonna pop big time, right? 

Well... maybe.  Whenever I get too bearish on Beijing, two things drag me back from the brink:  1) China's sheer size means it can muddle through and still increase its relative power; and 2) it's possible for China to experience a severe downturn and still recover quite nicely.  As I pointed out a few years ago:

[I look] at China and see the parallels with America's rise to global economic greatness during the late 19th and early 20th centuries. From an outsider's vantage point, America looked like a machine that could take immigrants and raw materials and spit out manufactured goods at will. By 1890, the U.S. economy was the largest and most productive in the world. As any student of American history knows, however, these were hardly tranquil times for the United States. Immigration begat ethnic tensions in urban areas. The shift from an agrarian to an industrial economy led to fierce and occasionally violent battles between laborers, farmers, and owners of capital. With an immature financial sector, recession and depressions racked the American economy for decades.

It is not contradictory for China to amass a larger share of wealth and power while still suffering from severe domestic vulnerabilities.

China-watchers tend to be divided between the Bubblers and the Extrapolators.  I'm still more sympathetic to the Bubblers, but if the "China is doomed" meme goes mainstream, I might have to defect. 

Let's face it, far more Americans associate the name "Bo" more with Barack Obama's dog than with Bo Xilai, the now-disgraced former Communist Party chief of Chongqing (my generation of Americans will, of course, forever associate Bo with this).  That might be about to change, however, because Bo is at the center of the most serious post-Tiananmen political scandal in China.  

To recap:  Bo was pushing hard for an appointment to the nine-person Standing Committee of the Chinese Communist Party's (CCP) Politburo -- the most powerful decision-making body in China.  He might very well have received it too, based on the combination of his "princeling" ties, his populist, Maoist-style campaigns and the flock of high party officials visiting Chongqing to see how he was doing it. 

Two months ago,  however, Bo's police chief Wang Lijun showed up at the U.S. consulate in Chengdu seeking asylum.  He left the consulate, but the reverberations haven't stopped.  First Bo disappeared from public view, then his "Jackie Kennedyesque" wife Gu Kailai was charged with the murder of British citizen Neil Haywood, and then Bo was formally put under investigation and stripped of all his party posts. 

So, what the hell happened?  Slowly, details are starting to trickle out about Bo's methods in Chongqing and exactly what led to his downfall.  In order, I'd suggest reading the following: 

1)  On Bo's methods in Chingqing, see this gripping Financial Times expose from March, followed by Malcolm Moore's dispatch in the Daily Telegraph. 

2)  See Reuters' Chris Buckley on what exactly triggered Wang's flight to Chengdu -- and then read this Cheng Li interview in NBR that throws some cold water on the stories coming out now.  . 

3)  On how U.S. officials handled Wang's request for asylum, check out the New York Times' Steven Lee Myers and Mark Landler's excellent reconstruction of events in Chengdu. 

4)  On what This All Means for China, read Minxin Pei, Max Fisher, Cheng Li, and Jonathan Fenby. 

5)  Finally, read John Garnault's excellent FP Long Read on whether a Bo-style scandal is about to break out in the People's Liberation Army. 

OK, now you know everything I know.  So what do I know about Bo?  Not much, except for four things: 

A)  For the past decade there was a lot of talk about how China had managed to routinize the authoritarian selection process.  The transfer of power from Jiang Zemin to Hu Jintao seemed seamless.  Well, say what you will about what's happening now, but it ain't seamless.

B)  I tend to agree with Minxin Pei (and disagree with Cheng Li) that Bo's arrest is not an example of the system working, but rather the system coming veeeerrrrry close to a catastrophic failure.  The fact China's official apparatus has clammed up after Bo's arrest is a clear sign that there's still a lot of infighting going on.  The notion that this will therefore lead to a real reform/anti-corruption trend strikes me as based on hope more than reality (though see this previous post of mine as a hedge). 

C)  Despite the official no-comments, the fact that Chinese officials are now leaking like a seive to Western reporters is interesting, and suggests the ways in which a purge in this decade will not resemble pre-Tiananmen purges.  It's not that there will be more rumors and conspiracy theories now than thirty years ago -- it's that all this stuff will not be on the Internet -- which will force the CCP to respond more than it would like.

D)  Based on how things played out, the U.S. State Department deserves a tip of the cap for how it handled Wang's sojourn to Chengdu.  The fact that there were no press leaks until yesterday is good -- anything the U.S. government says publicly about this episode needlessly embarrasses and angers the Chinese government.  That said, given the current attitudes in Beijing about the United States, even the Times story is going to raise some hackles.  Indeed, given the current strife inside China, it would be easy to envision Beijing making life difficult for the United States elsewhere as a way of using nationalism to paper over elite divisions.

Am I missing anthing?  Oh, I'm missing plenty, and I strongly urge China-watchers to proffer their comments! 

Yesterday I appeared on TVO's The Agenda with Steve Paikin to discuss Niall Ferguson's latest book, which argues that the West in general and the United States in particular is losing its mojo. 

The theme of Western decline was still running through my head as I perused the New York Times website this AM.  In his Damascus dispatch today, Neil MacFarquhar dutifully details the Syrian government's position on the cause of the sustained unpleasantness in the country:

Rather than responding to the motivations and demands behind the antigovernment uprising, opponents and political analysts say, the government has stubbornly clung to the narrative that it is besieged by a foreign plot....

Senior government officials — including Mr. Assad — and their supporters reel off a strikingly uniform explanation for the uprisings, blaming foreign agents and denying official responsibility for the violence.

“Most of the people that have been killed are supporters of the government, not the vice versa,” Mr. Assad said in an interview with ABC News broadcast on Wednesday. In the interview, Mr. Assad denied ordering a crackdown. “We don’t kill our people,” he said. “No government in the world kills its people, unless it’s led by a crazy person.”

Virtually no one in the Syrian government links the uprisings to the sentiment inspiring revolutions across the Arab world, to a public fed up with the status quo. Instead, they say the United States and Israel, allied with certain quisling Arab governments, are plotting to destroy Syria, to silence its lone, independent Arab voice and to weaken its regional ally, Iran. To achieve this aim, they are arming and financing Muslim fundamentalist mercenaries who enter Syria from abroad, Syrian officials say.

“Syria is one of the last secular regimes in the Arab world, and they are targeting Syria,” said Buthaina Shaaban, a presidential political and media adviser, warning that the West would rue the day that it enabled Islamist regimes.

And then I read David Herszenhorn's update on Vladimir Putin's thinking on the causes behind Russian protests earlier this week:

With opposition groups still furious over parliamentary elections that international observers said were marred by cheating, Prime Minister Vladimir V. Putin on Thursday accused Secretary of State Hillary Rodham Clinton of instigating protests by baselessly criticizing the vote as “dishonest and unfair” and he warned that Russia needed to protect against “interference” by foreign governments in its internal affairs.

“I looked at the first reaction of our U.S. partners,” Mr. Putin said in remarks to political allies. “The first thing that the secretary of state did was say that they were not honest and not fair, but she had not even yet received the material from the observers.”

“She set the tone for some actors in our country and gave them a signal,” Mr. Putin continued. “They heard the signal and with the support of the U.S. State Department began active work.”

Mr. Putin’s assertions of foreign meddling and his vow to protect Russian “sovereignty” came after three days in which the Russian authorities have moved forcefully to tamp down on efforts to protest the elections, arresting hundreds of demonstrators and deploying legions of pro-Kremlin young people in Moscow to occupy public squares and to chant, beat drums and drown out the opposition.

Wow, I had no idea that the United States was this powerful!!  Hillary Clinton is apparently capable of getting thousands of Russians in the streets with just a few sentences. 

Now clearly, actual American influence over events in Russia and Syria is pretty limited.  Still, if the perception of power is a form of power in and of itself, I wonder if the Secretary of State -- perhaps after consuming too much egg nog at the State Department holiday reception -- would be tempted to give the following address to the diplomatic press corps: 

I'd like to take this oppportunity today to admit that the United States, is, in fact, responsible for the nine-month uprising in Syria and the recent unrest in Russia.  Oh, hell, who am I kidding -- we're responsible for the entire Arab Spring!  It's true, the whole thing started about a year ago, at the Policy Planning Staff's Secret Santa party.  One of them said, "hey, you know what would really advance American interests in the Middle East?  If we destabilized secular authoritarian despots and empowered Islamist parties across the region!  Those parties would really be more likely to back American policies in the region!  Oh, and we should start with Egypt too, because of their peace treaty with Israel."  

That initiative was sooooo successful that, again, my Foreign Service Officers came up with the brilliant concept of instigating the Occupy Wall Street movement, so we could demonstrate a template for how protests should naturally germinate in other countries.  Did you like how some of the policy forces overreacted to those movements?  Yeah, that was the State Department's idea too.  We were hoping to encourage authoritarian leaders to overreact and crack down -- because without our inspiration, they would never have brutally repressed on their own. 

Now, some of you might wonder, "if the United States was really this all powerful, why not target countries that pose even bigger security concerns, like Iran, or China, or even Venezuela?"  Well, they're next.  Think of the Middle East and Russia as just the out-of-town premieres before a show gets on Broadway.  We've been working out the kinks to our methods, and now we think we've really perfected a universally applicable formula to apply to all our enemies in one fell swoop.  Remember the baptism scene in The Godfather?  Well, Hugo Chavez will wish he was Moe Green when we're through with him. 

Happy holidays, authoritarian cabals!! 

Travel and the associated jet lag from the travel have left me a bit befuddled and confused about the foreign policy discourse of the last week. I keep having to re-watch or re-read things just to make sure I'm understanding them correctly. I mean, did Rick Perry actually give the answer he gave on the Pakistani nukes question? Did John Mearsheimer seriously claim that a self-hating Jew can provide an accurate analysis about the state of modern Judaism?

My biggest confusion, however, is over the announced Putin-Medvedev switcheroo over the weekend. Indeed, my confusion operates at many levels. First, I was flummoxed that, well, any Russia-watcher was surprised by this move. Second, I was at a loss as to explain why any Washington-watcher would be fretting about the effect of this move on the "reset" of Russian-American relations. As Walter Russell Mead correctly observed today, "There is a good case for a businesslike US-Russian relationship no matter who runs Russia."

What has really confused me, however, is the possibility that this planned transition might hit a few bumps in the road.... like the actual departure of a powerful cabinet official:

Dmitry Medvedev, Russian president, sacked the country's finance minister on Monday, in the clearest sign yet that a deal between Mr Medvedev and prime minister Vladimir Putin to swap jobs next year is provoking a furious backlash in Moscow political circles.

Alexei Kudrin, the finance minister, had said at the weekend he would refuse to serve under Mr Medvedev if he became prime minister next year. In dismissing the mutinous minister, Mr Medvedev sought to demonstrate that he still has authority, analysts said - despite the humiliation of voluntarily standing down as president in favour of Mr Putin.

Mr Kudrin, a fiscal conservative, is respected by investors and widely credited with seeing Russia through the 2008-09 financial crisis. His dismissal came after Russian financial markets closed but the rouble earlier lost more than 1 per cent against the dollar, partly due to apprehension about the conflict with Mr Medvedev....

At a meeting of a government commission in the town of Dmitrovgrad on Monday, the two men faced off when Mr Medvedev told Mr Kudrin that his statement on Saturday "appears improper ... and can in no way be justified. Nobody has revoked discipline and subordination."

"If, Alexei Leonidovich, you disagree with the course of the president, there is only one course of action and you know it: to resign."

Mr Kudrin responded with a jibe: "I will take a decision only after having consulted the prime minister."

"You can get advice from whoever you want, with the prime minister if you want," snapped back Mr Medvedev. "But as long as I am president, these decisions I will take myself."

A few hours later Mr Medvdev's spokesperson announced Mr Kudrin's departure for reasons "that were laid out clearly in the commission meeting".

The humiliating public swipe from Mr Kudrin is a measure of how far Mr Medvedev's authority has eroded since he announced at the annual congress of the ruling United Russia party on Saturday that he would stand down next year to make way for a return of Mr Putin for a third term as president, assuming the role of prime minister under Mr Putin.

Could this kind of elite discord lead to even greater political discord in Russia? Reading Joshua Tucker's collection of expert commentary, as well as Julia Ioffe's FP observations, my initial answer would be no. Kudrin quit because he wanted to be the next prime minister and was therefore the odd man out of the Putin-Medvedev exchange. That would not seem to be a great foundation for a mass backlash against this move.

On the other hand.... in the case of Russia, mass backlash might be less important than elite backlash, and Kudrin is hardly the only member of the elite to be on the outside of the Putin-Medvedev axis. The self-interested reasons for the backlash matter less than the very public signal that the leadership transition is not playing out so smoothly after all.

In the short term, the most likely outcome is that this contretemps will blow over, and the worst-case scenario for Putin is that he decides to ditch Medvedev for someone a Kudrin clone/deputy. In the longer term, however, I do wonder if this move will push the Russian regime towards greater instability.

So, as I said, I'm pretty confused right now. What do you think?

Joshua Kurlantzick argues in The New Republic that despite the surface appeal of the Arab Spring, global trends are moving against the democratic system of government: 

The truth is that the Arab Spring is something of a smokescreen for what is taking place in the world as a whole. Around the globe, it is democratic meltdowns, not democratic revolutions, that are now the norm. (And even countries like Egypt and Tunisia, while certainly freer today than they were a year ago, are hardly guaranteed to replace their autocrats with real democracies.) In its most recent annual survey, the monitoring group Freedom House found that global freedom plummeted for the fifth year in a row, the longest continuous decline in nearly 40 years. It pointed out that most authoritarian nations had become even more repressive, that the decline in freedom was most pronounced among the “middle ground” of nations—countries that have begun democratizing but are not solid and stable democracies—and that the number of electoral democracies currently stands at its lowest point since 1995. Meanwhile, another recent survey, compiled by Germany’s Bertelsmann Foundation, spoke of a “gradual qualitative erosion” of democracy and concluded that the number of “highly defective democracies”—democracies so flawed that they are close to being failed states, autocracies, or both—had doubled between 2006 and 2010.

The number of anecdotal examples is overwhelming. From Russia to Venezuela to Thailand to the Philippines, countries that once appeared to be developing into democracies today seem headed in the other direction. So many countries now remain stuck somewhere between authoritarianism and democracy, report Marc Plattner and Larry Diamond, co-editors of the Journal of Democracy, that “it no longer seems plausible to regard [this condition] simply as a temporary stage in the process of democratic transition.”

Reason's Jesse Walker thinks Kurlantzick is making a "democracy meltdown" out of a few molehills: 

It's a dramatic story, but it isn't really accurate. We aren't on the road to Planet Burma. More likely, we're witnessing freedom's growing pains....

Kurlantzick's claim that freedom has "plummeted" for five years running. I'll accept Freedom House's ratings as a rough measurement of civil liberties and self-rule: You might quibble with their judgments on some specific countries, but the group gets the broad trends right. And those trends just don't show a plummet. The political scientist Jay Ulfelder, former director of the Political Instability Task Force, notes that what the Freedom House figures actually describe is "a period of major gains in the early 1990s; a period of slower gains in the late 1990s and early 2000s; and something like a plateau to minor slippage since the mid-2000s." He illustrates that with a chart showing the group's average scores over the last three decades.

[T]he recent trend looks more like a stagnation than a substantial shrinkage. And with anti-authoritarian activists still marching in the Middle East and elsewhere, there's a reasonable chance—not a certainty, but a chance—that we're about to see another big bump in the right direction.

Jay Ulfelder has more in his blog post [Full disclosure:  Jay and I got our Ph.D.'s in political science together.  We were even officemates for a year -- and Jay was the most polite and quiet officemate I ever had.]

Looking at the data, I'm inclined to say that Walker/Ulfelder win this argument.  Consider this paragraph from the Freedom House press release linked to by Kurlantzick: 

A total of 25 countries showed significant declines in 2010, more than double the 11 countries exhibiting noteworthy gains. The number of countries designated as Free fell from 89 to 87, and the number of electoral democracies dropped to 115, far below the 2005 figure of 123. In addition, authoritarian regimes like those in China, Egypt, Iran, Russia, and Venezuela continued to step up repressive measures with little significant resistance from the democratic world.

The move from 89 to 87 could be noise, and 115 is not "far below" 123.  There's some adjectival abuse going on here.  These modest trends away from democratization across countries can be easily reversed by a successful Arab Spring -- a big "if," admittedly.  

Kurlantzick and Freedom House do make one point, however, that neither Walker nor Ulfelder rebut.   The most disturbing trend is the "lock-in" of authoritarianism in so many medium and great powers.  China, Russia, Iran, Saudi Arabia -- these are countries that have trended towards the "not free" category for many a year now, and these regimes are getting better at stifling dissent.  Walker argues that, "the know-how for building freedom is still spreading," but the know-how for squelching it can also spread.  Indeed, the Arab Spring itself has led to genuine regime change in some countries, but in others it has been a testing ground for how to crack down. 

Even if the democratization wave continues, there are enough big authoritarian countries around that will not be transitioning anytime soon.  That is a significant change from twenty years ago, and it's worth thinking about the implications for the future.  \

UPDATE:  Jay Ulfelder responds to my point on new and improved forms of authoritarianism: 

Actually, I think the cases Dan mentions — China, Russia, Iran, and Saudi Arabia — support the view that the roster of democratic governments will continue to expand. Where Dan sees regimes that are “locking in” authoritarian rule by “getting better at stifling dissent,” I see regimes that are facing still-growing pressures to expand civil liberties and hold fair elections–pressures that should eventually help tip those countries onto the democratic side of the ledger....

I think it’s unlikely (but not impossible) that any of these regimes will cede power to democratically elected governments in the next year or two. At the same time, I think it’s also evident that these regimes are increasingly struggling to contain the same forces that have propelled the diffusion of democracy elsewhere in the past two centuries. What I learn from the trajectories of prior transitions is that those forces cannot be contained forever. The processes of political change spurred by those forces are often choppy, frustrating, and even violent, but the long-term trend away from self-appointed rulers toward elected government is remarkably strong and consistent, and the forces driving that trend are already evident in many of the world’s remaining “hard” cases of authoritarian rule.

I hope he's right -- but stories like these make me wonder if he's underestimating the innovations of "smart" authoritarian institutions. 

In Sayf-Al-Islam's rambling speech last night on Libyan State television, he blamed the current unpleasantness in his country on, as near as I can determine, crazed African LSD addicts. 

This isn't going down as well as Sayf had intended, and Libya seems less stable than 24 hours earlier.  Indeed, Sayf's off-the-cuff remarks managed to make Hosni Mubarak's three speeches seem like a model of professionalism, which I would not have thought was possible a week ago.  

Indeed, it is striking how utterly incompetent leaders in Tunisia, Egypt, and Libya have been at managing their media message.  Speeches are announced, then never delivered on time, and then delivered with production values that woulds embarrass a public access channel in the U.S.  It's like political leaders in the region have discovered blogs just as the young people has moved on to Twitter or something.  [Er, no, that's the United States--ed.]  Oh, right. 

Having just finished a week of intense media whoring, methinks that one problem is that most of these leaders have simply fallen out of practice (if they were ever in practice) at personally using the media to assuage discontent.  I've been on enough shows on enough different media platforms to appreciate that there is an art, or at least a tradecraft, to presenting a convincing message in the mediasphere.  Authoritarian leaders in the Middle East are quite adept at playing internal factions off one another.  That's a different skill set than trying to craft a coherent and compelling media message to calm street protestors no longer intimidated by internal security forces. 

Indeed, as I argued in Theories of International Politics and Zombies, bureaucratic first responses to novel situations are almost uniformly bad.  Sayf pretty much admitted this last night, as he acknowledged that the Libyan armed forces were not trained to deal with street protestors.  I suspect the same is true with the state media outlets -- they excel at producing tame, regime-friendly pablum during quiescent periods, but now they're operating in unknown territory. 

I also argued that bureaucracies should be able to adapt their organizational routines over time, if a regime's domestic support does not evaporate.  Readers are encouraged to predict which regimes under threat in the Middle East are the most likely to be able to adapt.  My money is on Iran -- not because that regime is more popular, but simply because Iran's leaders have had eighteen months to adapt and they are therefore further down the learning curve. 

Developing....

Over the weekend I finally saw The Social Network and read Malcolm Gladwell's New Yorker essay about social networks. Both Gladwell and Aaron Sorkin, the screenwriter for The Social Network, have their issues with futurists who embrace these technologies as the beginning of a social revolution. 

Now I'm pretty sympathetic to these arguments. In the past, I've expressed a fair amount of ambivalence about the power of Internet technologies to transform the world. After reading the essay and watching the movie, however, I can't say I'm all that convinced by their theses. 

Let's start with Gladwell, because it's the lesser of the two arguments. Gladwell contrasts the relationships and connections forged on Twitter/Facebook with real-world movements. He argues that the latter work when based on a hierarchical structure with strong ties among the participants. The former is based on a networked structure with weak ties. Therefore:

Social media are not about this kind of hierarchical organization. Facebook and the like are tools for building networks, which are the opposite, in structure and character, of hierarchies. Unlike hierarchies, with their rules and procedures, networks aren’t controlled by a single central authority. Decisions are made through consensus, and the ties that bind people to the group are loose.

This structure makes networks enormously resilient and adaptable in low-risk situations. Wikipedia is a perfect example. It doesn’t have an editor, sitting in New York, who directs and corrects each entry. The effort of putting together each entry is self-organized. If every entry in Wikipedia were to be erased tomorrow, the content would swiftly be restored, because that’s what happens when a network of thousands spontaneously devote their time to a task.

There are many things, though, that networks don’t do well.... Because networks don’t have a centralized leadership structure and clear lines of authority, they have real difficulty reaching consensus and setting goals. They can’t think strategically; they are chronically prone to conflict and error. How do you make difficult choices about tactics or strategy or philosophical direction when everyone has an equal say?

This sounds good, except this doesn't describe networks all that well. Networks eliminate neither hierarchical power nor strong ties -- they're simply expressed in different ways. Actors in central nodes, with lots of dynamic density among other actors, can command both power and discipline. Not all networks will look like this, but the ones successful at fomenting change will likely resemble it. To put it more precisely: social networks lower the transactions costs for creating both weak ties and strong ties, loose collaborations and more tightly integrated social movements. 

It's not either/or, a point Oliver Willis raises:

Things bubble over to real world via social networking when influencers push the influenced to do something. Social networks tend to magnify this, and the web does give some of us who would never be real-life leaders a way of having some sway. I find it odd that Gladwell misses this, because this is the whole point of his bestseller The Tipping Point.

I’ve no doubt that getting your followers to do something in the real world is more complicated than getting them to retweet or “Like” something, but I don’t think the barrier to doing that is social networking’s distributed nature but rather the intensity of the network following you. But this is the same as in the real world. Network leaders need to have leadership skills no matter the medium.

The movie The Social Network was far more interesting. There is some controversy over what's been fictionalized, what's been mysoginized, and what's been left out of the film, and I'm sympathetic to some of these arguments. Taking what was intended to be on the screen, however, The Social Network also suggests the ways in which offline and online structures intersect. There were many reasons for Facebook's rise, but I have to think that the site's initial exculsivity helped to give it something that MySpace and Friendster lacked. 

The film has many great moments (if Aaron Sorkin was meant to translate any real-life figure onto film, it was Larry Summers). Both the ending and Sorkin's interviews about the film, however, suggests that there's an emptiness at the core of Facebook that hollows out 21st-century friendships. 

I don't buy this. Social networking sites giveth as much as they taketh away. Speaking from my own experience, I've found myself becoming closer with some friends and less close with others based on Facebook. 

More generally, there seems to be a generational effect whenever a new social technology emerges. Different generations react in radically different ways:

1) The Mature Generation tends to disdain the technology as yet another example of the world going to hell in a handbasket. 

2) For the Maturing Generation, the new technology is both a blessing and a curse. The adroit learn how to use the new technology to vault to social, political or economic heights that they would not have otherwise achieved. At the same time, a new technology without new social norms inevitably creates confusion about what is acceptable and what is taboo. Some people lose status as a result. 

3) For the Youngest Generation, the technology isn't new by the time they come to use it. They're savvy in the ways that the technology is both an opportunity and a risk, and can navigate those waters without thinking too hard. For this generatioon, the social technology is part of the new normal. 

Sorkin has demonstrated his Oldest Generation credentials since the "Lemon-Lyman" episode of The West Wing. Which is fine. But there are other generations out there, and they're not relating to these technologies the way that Sorkin thinks.