Is There Life in Health Care Reform?

By Elizabeth Drew

In politics, as in life, there's often a very fine line between a fluke and an earthquake. They can even be mistaken for each other. In many ways, Scott Brown's upset victory over Martha Coakley on January 19 for the Senate seat long held by Edward M. Kennedy, just as Congress was nearing agreement on the health care bill, was a fluke. The confluence of seemingly unrelated events had more impact than any of them would have had individually. Even the date of Kennedy's death last August had major consequences: if it had happened a month later, the President might already have signed a health care bill into law by the time the election was held. A senior Democratic House strategist told me, "Had we known that Massachusetts was in play, we'd have worked through the Christmas break and might well have been done before the election." The bills passed by the House on November 7 and by the Senate on the day before Christmas were quite similar. (Nancy Pelosi and Harry Reid and their aides, in consultation with the White House, had seen to that.)

As a result of intensive negotiations in early January, the bills were more than 95 percent alike by the time of the Massachusetts election. Two major issues remaining had to do, first—thirty-seven years after the Roe decision establishing abortion as a constitutional right—with Congress having adopted provisions in the health care bill that make it difficult (the Senate) or even impossible (the House) for women who received federal help to purchase abortion coverage with their own funds (really!); and, second, with excise taxes on the more expensive ("Cadillac") plans, which labor objects to.

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Republicans had applied the theory that the longer a bill is delayed, the weaker it becomes. Their real goal was to kill it. They gave Senate Finance Chairman Max Baucus just enough encouragement that he engaged in a months-long effort to get Republican backing for the bill. The idea, shared by the White House, was that a bill with bipartisan support would have more legitimacy with the public; but the negotiations kept going long after it was clear that the Republicans didn't want to help. (He got the vote in committee of Maine's Olympia Snowe, who made a big show of her reluctance to give it—the diva who wouldn't leave the stage—and then voted against the bill on the Senate floor.) Finally, even the White House gave up on Baucus and scheduled Obama's speech to Congress on health care on September 9, to encourage his committee to wrap it up. By the time the Senate finally passed its bill on Christmas Eve, Coakley was losing altitude, but no one seemed to notice.

An election outcome is usually caused by a number of factors, but national observers tend to look for national implications. In fact, Coakley broke a fundamental rule of running for office. Having swept the primary, she took the final election, five weeks later, for granted. As a Democratic senator said to me afterward: "There's a saying that there are only two ways to run: unopposed or skeered." He added, "She wasn't unopposed." Though she had run for the nomination on the fashionable demand for "change," the handsome, sly, and wily Brown beat her at her own game. Because no one realized in time that it was a real race, there were no exit polls, but a telephone survey by the highly respected Hart Research Associates on the night of the election called it "a working-class revolt," saying that the survey "reveals to Democrats [the cost]of not successfully addressing workers' economic concerns." Yet the survey also concluded that by a two-to-one majority, voters said they decided on the basis of the candidate, not because they were "sending a message to Washington."

The Hart firm also interpreted the results as "not a call to abandon national health care reform," pointing out that "Brown actually lost among the 59 percent of voters who picked health care as one of their top two voting issues." It was another fluke that Massachusetts was the only state with a comprehensive health care program, which Brown had supported, but he said therefore he didn't want the people of Massachusetts to pay for the health care of people in other states.

Nevertheless, many people jumped to the conclusion that the election was a rejection of the pending health care bill. The bill itself, its perceived shortcomings and flaws notwithstanding, stood to be the greatest advance in health care coverage for Americans in decades, if not ever. At least 30 million more people would receive coverage; those who could not afford health insurance would receive subsidies; those with coverage would be relieved of the worst depredations of the health insurance industry, such as rejecting people on the grounds that they had "preexisting conditions" or cutting off care of a patient because it was becoming too costly. Access to Medicaid would be significantly expanded. Presumably a start would be made on getting some control over the ever-burgeoning health care costs to this country. Moreover, it could be the last chance for significant health care reform for a long time.

Even before the Massachusetts election, it was evident that progressives were probably at the peak of their political power for some time to come: typically, the party of first-term presidents loses seats in the midterm elections, and the outlook for the Democrats in 2010 was already ominous. Elections in 2009 for governor in Virginia and New Jersey, as well as various polls, indicated that independents, who had swung the 2008 election to Obama, were leaving the Democrats in droves. And the closer a controversial bill gets to the midterm elections, the more the incumbents become uneasy about it. This is why Obama, who had campaigned hard on the issue, made it his first domestic priority; key figures on Capitol Hill told the White House that it was reasonable to expect Congress to pass it by August 2009.

Even though until the Massachusetts election the Democrats held sixty Senate seats (the first time a party had done so for thirty years)—just enough to shut off a filibuster—the Democrats themselves were divided in their degree of support for the bill, with some seeming opposed, and some, such as Blanche Lincoln, of Arkansas, facing daunting reelection challenges, while the Republicans were united against it. Therefore, Harry Reid and the White House had very little room to maneuver. And while Nancy Pelosi had a more progressive caucus, it was not enough to get bills through the House without the support of some moderate or conservative Democrats. (Hence she had to accept the harsh anti-abortion restrictions of the cartoonish Congressman Bart Stupak of Michigan.) In sum, in the Senate we have a parliamentary system, which depends on party discipline, but not majority rule; it's not a workable system.

Therefore, while the health care bill could be changed at the margins, at some point the question became not whether the bill would meet most of the progressives' expectations but whether there would be a bill at all. It was a lot easier for progressive critics to attack the bill, and say that it should be significantly changed—arguing in particular that it should not rely so much on the flawed existing private insurance system—than it was to find sufficient votes to change it. The bill that emerged from the Senate probably went about as far as could be expected, in view of the political realities. Sheldon Whitehouse, a freshman Democrat from Rhode Island who is widely seen as increasingly influential in the Senate, told me, "The vast majority of Democratic senators pushed the more conservative members of the caucus about as far as they could be pushed. We couldn't get any more from our more insurance-oriented members." As for Obama's role, Whitehouse said, delicately, "I don't think the President would add much to the equation. I think the internal pressures of the caucus took it about as far as it could get."

Yet numerous critics in and out of Congress publicly denigrated the bill for not going far enough. Howard Dean, who obviously delighted in the television attention he was getting, and who certainly should have understood the reality, called the Senate bill without the much-discussed public option (for which it was clear from the outset that there weren't enough Senate votes) "a farce." In mid-December, he urged, recklessly, that the Senate should set the bill aside and start over. Under pressure from annoyed Democrats, he backed off.

Opinions about the significance of the public option were mixed. Some influential reform advocates didn't believe that it was so critical, and thought that its advantages could be made up in other ways, in particular through rules governing the insurance exchanges that were to be set up—but they didn't want to say so out loud for fear of alienating the Democratic left. Even some senators who preferred the public option but knew that there weren't the votes for it said privately that it had been made into an "icon," blown out of proportion. This was the calculation that Obama made: he sometimes gave it lip service in order to appeal to his base, but never really fought for it.

The Republicans had decided even before Obama was sworn in that they would use the rules to deny him success on every major issue. Such obduracy was without precedent in modern times. Even if they hadn't gone that far, it would have been impossible for Obama to achieve the bipartisanship he had so easily and naively promised in the campaign. The days of bipartisanship were already long gone. For sociological and political reasons, the electorate had changed; the center had just about disappeared. Former Senate Majority Leader Tom Daschle says that the last time the Senate acted in a spirit of comity was in the 1980s. The situation of 2009–2010 is different: it's not a matter of the two parties being unable to compromise on the substance of policy; it's a matter of one party deciding to deny the other any political achievements at all.

A stunning example occurred in late January. After Obama said he would support a proposed bipartisan fiscal commission, which would recommend politically difficult cuts in the federal budget, to be voted up or down by Congress (along the lines of the base-closing commission), seven Republicans who had sponsored the proposal actually voted against it—enough to defeat it. Obama said he would set up a commission by executive order, but it won't have the same power, and some key Republicans announced that they would boycott it.

Because of the filibuster rule, it's been assumed for many years that anything controversial, even bringing up a bill for debate, needs sixty votes (sixty-five until 1975). In the past, filibusters, or threats of them, had been made by a faction of the Senate, or of a party, or by representatives of a region (Southerners opposed to civil rights bills), and motions to end filibusters were usually bipartisan. When the health care bill was before the Senate, with all the Republicans lined up against it, the Democrats' needing sixty votes meant that every single member of the Democratic Senate caucus was a potential king or queen. Each senator was in a position to make demands, or to threaten to kill the bill. More of them behaved this way—putting themselves ahead of the greater good—than might have been expected. Each time, the White House and the Senate leadership had to decide between accepting an undesirable amendment or letting the bill die.

The Republicans have long been more respectful of hierarchy than the Democrats; this tendency was greatly enhanced after Newt Gingrich and his allies took over the House in the 1994 midterm elections and methodically accrued more and more power to the Speaker's office. As Gingrich's acolytes moved to the Senate in large numbers, they took with them their ways of exercising power and their scrappiness, their disdain for traditional Senate comity. And the Senate Republicans have their own ways of enforcing discipline. In mid-December 2009, Republicans were threatening to filibuster the defense appropriations bill for the acknowledged purpose of delaying consideration of the health care bill, which was to follow. (They were thus holding up pay and supplies for the troops fighting in Iraq and Afghanistan; if the Democrats did that, they would be charged by the Republicans with treason.)

The Democrats believed that they had a deal with Thad Cochran of Mississippi, the senior Republican on the Defense Appropriations Committee and widely admired as a courtly and honorable man, to adopt some amendments he wanted to the defense bill; in return he would provide the sixtieth vote to shut off the filibuster on defense appropriations. (One Democrat was holding out on this vote.) But then the Senate Republican leaders, in particular the dour whip John Kyl of Arizona, leaned heavily on Cochran, telling him that the Republicans had to stick together and make the Democrats come up with their own sixty votes. "It was kind of an agonizing ordeal for me," Cochran told me later.

In some instances, Republicans who might shun the leaders' demands are given indications that their future committee assignments might be affected; and they can be made to feel very lonely in conference meetings. Cochran's Democratic colleagues watched in amazement as the last man they thought wouldn't keep his word quietly raised his hand to cast his vote (he couldn't even say it) against shutting off the filibuster on the defense bill, and quickly left the Senate floor. If the Republican leadership is willing to treat Cochran—who is third in seniority among Senate Republicans and would be chairman of the Appropriations Committee if the Republicans were in the majority—in this way, it's not hard to imagine how more junior members are treated.

The President, his aides, and other leading Democrats were already aware that rage was building among voters as a result of the same facts that were frustrating the administration: despite all its efforts, the bailouts, and the stimulus, unemployment remained high. Though gains had been made, fear that the recovery wasn't real was holding it back. A major economic adviser to the President told me not long ago that by November 2010 unemployment might well reach above 10 percent because, as the economy presumably improved, more people who had stopped looking for work would reenter the job market.

Though Obama had in fact achieved more than any recent president in his first year in office, and his personal popularity remained relatively high, his approval rating was falling fast, and he was widely seen as a failing president. Obama was getting more criticism than credit for his actions to keep the economy from falling into a depression—a subject that hadn't come up in the campaign—and in his State of the Union address in late January he distanced himself as far as possible from the bank bailout. ("I hated it. You hated it.") Still, White House aides understood that—"not without reason," one adviser told me—much of the public saw the Obama administration, as the saying went, as more concerned about Wall Street than Main Street.

Some of Obama's achievements were simply lost in all the hubbub over the health care bill. Some were simply confused with one other (many thought the stimulus bill and the bailouts were the same thing). Obama was proving at risk of fitting that most dangerous of political descriptions: a disappointment. His campaign aides had portrayed him as a "transformational figure" who would have a vast following ready to march for him, helping him pass his legislation. But this following didn't materialize once he came to office, in part because people who had set aside time to help him win the presidency had other things to do with their lives, in part because the Obama administration has been neither well organized nor effective at summoning the predicted following for his programs. Obama seemed to have lost his magic.

There's no question that the health care bill was sinking in popularity before the Massachusetts vote (but it was not, as Brown said recently on ABC's This Week, "on its last legs"). The interesting question is why it was losing support. In an NBC/Wall Street Journal national poll shortly before the Massachusetts election, only 33 percent of the public approved of Obama's health care plan. Yet this same poll indicated that 40 percent of the respondents wanted reform efforts to do more, not less. My own view is that it was their impression of what happened as much as what actually was going on that caused so many people to turn against it. The process became confused with the substance. The analogy between legislating with sausage-making fits here particularly well—"People who love sausage should never see it made." The legislating on the health care bill was widely followed in the media; people saw the sausage being made.

Moreover, a number of people behaved very badly, showing for all the world to see that they put themselves ahead of the greater good. (Not all did, by any means, but enough to disgust the public.) Getting attention and taking home as much bacon as possible (even at the expense of other states and the bill itself) and ideological posturing (pushing for something that had no purpose except being divisive and getting the legislator proposing it on television as a result) were too much in evidence. Inevitably, much of the public became fed up—forgetting the purpose of the whole enterprise. Perfectly intelligent people told me that they no longer cared whether the health care bill passed after Ben Nelson of Nebraska, a conservative Democrat (and former insurance executive) who used his necessary sixtieth vote to great advantage (he had already been complicit in modifying the stimulus bill for the worse), arranged to get his state exempted from paying fees for the expanded Medicaid program. (This followed the "Louisiana Purchase" by which Mary Landrieu obtained an extra $300 million in Medicaid money for her state.)

People shocked by these arrangements overlooked that such deals, if not of this magnitude or open brazenness, take place all the time. But the Nelson deal caught people's attention and blew it out of proportion; watching the health care bill move through Congress was like being in a hall of mirrors in a fun house. Everything, it seemed, was distorted. Nelson, however, got flack from his own state because he had gone too far, and after a while tried to get rid of the amendment, but because of the legislative impasse he was stuck with it. What were Senate leaders or White House aides thinking about when they accepted Nelson's ransom demand? Or Joseph Lieberman's rejection of a proposal to expand Medicare coverage? (Lieberman, though he got there first, was not alone in his opposition.) They were asking themselves, one of them told me, whether it was worth rejecting these proposals, only to lose the bill.

But citizens who were so turned off by the Nelson deal that they were ready to give up on the health care bill weren't adequately informed about the bill itself, and this gets back to the treatment of the health issue in the press and on television and the Internet. The Nelson story was a big story; what was in the health care bill was not. The messiness and the anger on Capitol Hill were the story. The media also had a large part in polarizing the public over the bill. As cable outlets and blogs become more ideological, on both the left and the right, people have become more inclined to seek out the ones they agree with. And the outlets stir up ratings through exaggeration and combat.

Though Obama never submitted his own bill—which might have helped but he didn't want to be seen losing on some of its provisions—he said again and again what he wanted the health care bill to be, or what it was, but the press didn't think that was news. What good the bill would do, even what it would do, didn't fit in with the story the press wanted to tell. The people who appeared most often as guests on television—to the point of aching tedium—were those who had objections to the bill, particularly those on the left such as Dean, and Anthony Weiner, a New York House member, who complained repeatedly about the absence of the public option, long after it was clear that the Senate wouldn't accept it; and the Socialist-Independent Bernie Sanders, who clung to the fantasy of turning the whole thing into a single-payer system. One unfortunate upshot of Obama's decision not to get very involved publicly until the final negotiations was that his presidency became too defined by the goings-on on Capitol Hill, the deal-making. The clear impression was that Obama was not leading.

Obama's and his administration's performance on the day after the Massachusetts Senate election was dismaying. Obama told George Stephanopoulos in an ABC interview that morning that the White House had seen Coakley's loss coming for a week, but they clearly weren't prepared. They lacked both talking points and strategy, and the result was a mess. First, the President mentioned a legislative procedure, although no one knew what he was talking about, and then he made matters worse by suggesting that the bill might have to be pared down to its more popular parts, which was not only an early retreat but would be more difficult than it sounded, because the bill's main parts were in equipoise.

Popular insurance reforms, such as guaranteeing that no one would be rejected because of preconditions, were interconnected with ways to pay for them—by guaranteeing insurance companies more customers, which required a mandate to buy insurance policies. This, in turn, would require subsidies for those who couldn't afford insurance. Obama's press aides spent the rest of the day cleaning up after him, by saying that the President still preferred that Congress pass a major health care bill. The absence of a clear statement from the White House led panicked Democrats on Capitol Hill to make contradictory and often incoherent comments.

A similar thing happened with the President's speech to a Democratic National Committee meeting on February 4, in which he suggested a time-consuming process, and the possible outcome that the bill could die. Once again, aides had to fan out to clarify that Obama still wanted a bill, and I'm reliably told that there are meetings at the White House every day on how to salvage the bill.

The problem isn't, as this White House, like many before it, concluded, that it wasn't "communicating": it communicates all the time, sending aides out to deliver messages on talk shows and putting the President before the cameras (and TelePrompters, which should go) all the time. The problem is that they convey contradictory messages and that the President is far better at rhetorical eloquence than he is effective at explaining what needs to be done. He sometimes ruminates—and gets in trouble. White House aides complain that the press "overinterprets" what the President says, but by now the Obama White House should understand that that's how it works.

And Republicans seem to win the "talking points" time and again. The wise Vin Weber, a former Republican congressman and now a lobbyist, says that the problem isn't that the Republicans are so much better than the White House at creating "talking points," but that "it's very difficult to put together positive talking points on health care. It's very complicated. In fact, it's very hard to find a time when health care was a winning political issue." Weber recalled the famous incident when, after Congress in 1988 had passed a bill to provide Medicare coverage, for a fee, for catastrophic care, House Ways and Means Chairman Dan Rostenkowski, its chief sponsor, was chased away in his car by an angry Chicago mob; three months later the bill was repealed. So administrations trying for health care reform tell themselves, as the Obama administration has done, that people would like the bill when it came into effect and would then stop focusing on the bad things it might do.

Mostly for financial reasons, however, the main part of the current health care bill wasn't to go into effect until 2014. So the administration came up with a list of "deliverables"—advantages they could give people before then. But through repetition and lies, the Republicans were winning the propaganda debate. Time and again, they spoke of a "government takeover of health care." On the night the House passed the bill, Minority Leader John Boehner engaged in a long rant that included warnings that people would go to jail if they didn't buy health insurance. Meanwhile, the White House's rationale for the bill wandered from being a way to reduce the deficit, to a way to protect consumers, to a moral imperative, to, more recently, something that would produce jobs.

By the time of the State of the Union address, the President and his aides had wanted to "pivot" from health care to legislation to provide more jobs; the dragged-out consideration of the health care bill had been agonizing for them, as well as politically damaging. So he pivoted anyway. Advocates of health care reform complained; but in the midst of all the commotion about the Massachusetts election and the evidence of a working-class revolt, Obama would have looked like the doofus he isn't had he led off with yet another argument for health care. But he insisted that he hadn't given up on it, because not to succeed would be a political disaster for him—and as he pointed out in the speech, "I know this problem is not going away."

Obama was also criticized for not laying out in his speech a strategy for how to get a final health care bill, but there was no strategy. By this time, the House and the Senate, between which there have long been institutional tensions, were nearly at war. The House had passed some politically difficult bills (cap and trade to lower carbon emissions, regulatory reform of Wall Street, another jobs bill) that were lying dormant in the Senate. House Democrats were steamed up and threatening not to take up certain bills, such as immigration reform, until the Senate had done so.

Now that the Senate Democrats had lost their sixtieth vote, working out a final health care bill had become vastly more difficult, as a number of other things promised to be. (To rub it in, Scott Brown got himself sworn in a week earlier than planned, on February 5.) Without sixty votes, the Democrats couldn't simply reopen the Senate bill to incorporate the changes that the Democratic House and Senate leaders had agreed upon. Instead, the Senate Democrats wanted the House to adopt the Senate bill, and then both chambers would adopt a "reconciliation" bill (which would require just fifty-one votes in the Senate) that would include most of the final changes.

But House Democratic leaders, mistrusting the Senate—and not liking it, either—balked at doing that. Pelosi stated definitively that she couldn't get enough House votes to pass the Senate bill, unless the Senate passed the reconciliation bill first. And the Senate said that the rules made it impossible to adopt the reconciliation bill first (the House disagreed). Some of the changes couldn't be put in the reconciliation bill, which can only deal with matters that affect the budget. This would call for a third bill, which no one knows how to pull off.

Logically, there should still be a way to get a bill passed. But logic went out the window on January 19. The situation was as much psychodrama as legislative stalemate. The perfectly reasonable argument was made to Democrats in Congress, mainly by the administration, that, having voted for the bill already, it would be worse for them to fail to pass it than to pass it, but this seemed not to be heard. If Obama didn't exert himself for the bill on which he'd spent most of his time in office thus far, it would be not just a political catastrophe for him but leave a scar on his presidency. Longtime observers—members of Congress and people who deal with them—say they have never seen such a sour mood on Capitol Hill, affecting both members and staff alike. One longtime Democrat said to me recently:

The moderates are paranoid, the liberals are upset, the leaders are frustrated and losing the trust of everybody. There's no level of trust between the Senate and the House or the White House and everyone else. There has been a breakdown of the kind of chemistry you need to get this kind of thing done.

The opportunity might have been lost as a result of a misreading of a fluke in Massachusetts. To successfully remedy this misreading would require a certain amount of will, but, at least in the Senate, whatever will had been present appears to be fading. A senior Senate Democratic aide said to me at the end of the week after the election, "There isn't a member of our caucus that isn't concerned after what happened last week." A few days later the same person sent me the following e-mail:

Every option is bad. The leaders in the House and the Senate want to get a bill but enthusiasm is waning in the rank and file. They want us to focus on jobs. Still think we can get it done but have no idea how.

Obama's move to take the issue to the Republicans by inviting them to a half-day, bipartisan meeting at Blair House on February 25 to discuss health care—without, as the Republicans had been insisting, scrapping the pending bill and starting over—was intended to show the public (and wobbly Democrats) who the obstructionists are. (And Obama's recent televised meeting in Maryland with House Republicans had been a big hit.) The invitation was also intended to answer public criticism, now registering in the polls, of "backroom deals" (Landrieu, Nelson) and Republican taunts that Obama hadn't followed through on his ill-considered campaign pledge to put health care negotiations on C-SPAN. (That's not the way real negotiations get done, and Obama, new to national politics, probably never dreamed he'd be taken seriously. Or he spoke without thinking.)

The Republicans believe that their strategy of denying Obama legislative victories is a winning one. If the meeting on February 25 doesn't lead to a serious bill, White House aides made it clear that the President would go ahead and try to get a health care bill anyway. Somehow.

—February 9, 2010

Publishing: The Revolutionary Future

By Jason Epstein

The transition within the book publishing industry from physical inventory stored in a warehouse and trucked to retailers to digital files stored in cyberspace and delivered almost anywhere on earth as quickly and cheaply as e-mail is now underway and irreversible. This historic shift will radically transform worldwide book publishing, the cultures it affects and on which it depends. Meanwhile, for quite different reasons, the genteel book business that I joined more than a half-century ago is already on edge, suffering from a gambler's unbreakable addiction to risky, seasonal best sellers, many of which don't recoup their costs, and the simultaneous deterioration of backlist, the vital annuity on which book publishers had in better days relied for year-to-year stability through bad times and good. The crisis of confidence reflects these intersecting shocks, an overspecialized marketplace dominated by high-risk ephemera and a technological shift orders of magnitude greater than the momentous evolution from monkish scriptoria to movable type launched in Gutenberg's German city of Mainz six centuries ago.

Though Gutenberg's invention made possible our modern world with all its wonders and woes, no one, much less Gutenberg himself, could have foreseen that his press would have this effect. And no one today can foresee except in broad and sketchy outline the far greater impact that digitization will have on our own future. With the earth trembling beneath them, it is no wonder that publishers with one foot in the crumbling past and the other seeking solid ground in an uncertain future hesitate to seize the opportunity that digitization offers them to restore, expand, and promote their backlists to a decentralized, worldwide marketplace. New technologies, however, do not await permission. They are, to use Schumpeter's overused term, disruptive, as nonnegotiable as earthquakes.

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Gutenberg's technology was the sine qua non for the rebirth of the West, as if literacy, scientific method, and constitutional government had been implicit all along, awaiting only Gutenberg to throw the switch. Within fifty years presses were operating from one end of Europe to the other, halting only at the borders of Islam, which shunned the press. Perhaps from the same fear of disruptive literacy that alarmed Islam, China ignored a phonetic transcription of its ideographs, attributed to a Korean emperor, that might have permitted the use of movable type.

The resistance today by publishers to the onrushing digital future does not arise from fear of disruptive literacy, but from the understandable fear of their own obsolescence and the complexity of the digital transformation that awaits them, one in which much of their traditional infrastructure and perhaps they too will be redundant. Karl Marx wrote of the revolutions of 1848 in his Communist Manifesto that all that is solid melts into air. His vision of a workers' paradise was of course wrong by 180 degrees, the triumph of wish over experience. What melted soon solidified as industrial capitalism, a paradise for some at the expense of the many. But Marx's potent image fits the publishing industry today as its capital-intensive infrastructure—presses, warehouses stacked with fully returnable physical inventory, its retail market constrained by costly real estate—faces dissolution within a vast cloud in which all the world's books will eventually reside as digital files to be downloaded instantly title by title wherever on earth connectivity exists, and printed and bound on demand at point of sale one copy at a time by the Espresso Book Machine^[1] as library-quality paperbacks, or transmitted to electronic reading devices including Kindles, Sony Readers, and their multiuse successors, among them most recently Apple's iPad. The unprecedented ability of this technology to offer a vast new multilingual marketplace a practically limitless choice of titles will displace the Gutenberg system with or without the cooperation of its current executives.

Digitization makes possible a world in which anyone can claim to be a publisher and anyone can call him- or herself an author. In this world the traditional filters will have melted into air and only the ultimate filter—the human inability to read what is unreadable—will remain to winnow what is worth keeping in a virtual marketplace where Keats's nightingale shares electronic space with Aunt Mary's haikus. That the contents of the world's libraries will eventually be accessed practically anywhere at the click of a mouse is not an unmixed blessing. Another click might obliterate these same contents and bring civilization to an end: an overwhelming argument, if one is needed, for physical books in the digital age.

Amid the literary chaos of the digital future, readers will be guided by the imprints of reputable publishers, distinguishable within a worldwide, multilingual directory, a function that Google seems poised to dominate—one hopes with the cooperation of great national and university libraries and their skilled bibliographers, under revised world copyright standards in keeping with the reach of the World Wide Web. Titles will also be posted on authors' and publishers' own Web sites and on reliable Web sites of special interest where biographies of Napoleon or manuals of dog training will be evaluated by competent critics and downloaded directly from author or publisher to end user while software distributes the purchase price appropriately, bypassing traditional formulas. With inventory expense, shipping, and returns eliminated, readers will pay less, authors will earn more, and book publishers, rid of their otiose infrastructure, will survive and may prosper.

This future is a predictable inference from digitization in its current stage of development in the United States, its details widely discussed in the blogosphere by partisans of various outcomes, including the utopian fantasy that in the digital future content will be free of charge and authors will not have to eat.

Digitization will encourage an unprecedented diversity of new specialized content in many languages. The more adaptable of today's general publishers will survive the redundancy of their traditional infrastructure but digitization has already begun to spawn specialized publishers occupying a variety of niches staffed by small groups of like-minded editors, perhaps not in the same office or even the same country, much as software firms themselves are decentralized with staff in California collaborating online with colleagues in Bangalore and Barcelona.

The difficult, solitary work of literary creation, however, demands rare individual talent and in fiction is almost never collaborative. Social networking may expose readers to this or that book but violates the solitude required to create artificial worlds with real people in them. Until it is ready to be shown to a trusted friend or editor, a writer's work in progress is intensely private. Dickens and Melville wrote in solitude on paper with pens; except for their use of typewriters and computers so have the hundreds of authors I have worked with over many years.

In preliterate cultures, the great sagas and epics were necessarily communal creations committed to tribal memory and chanted under priestly supervision over generations. With the invention of the alphabet, authors no longer depended on communal memory but stored their work on stone, papyrus, or paper. In modern times, communal projects are limited mainly to complex reference works, of which Wikipedia is an example. Though social networking will not produce another Dickens or Melville, the Web is already a powerful resource for writers, providing conveniently online a great variety of updated reference materials, dictionaries, journals, and so on instantly and everywhere, available by subscription or, like Google search and Wikipedia, free. Most time-sensitive reference materials need never again be printed and bound.

Informed critical writing of high quality on general subjects will be as rare and as necessary as ever and will survive as it always has in print and online for discriminating readers. Works of genius will emerge from parts of the world where books have barely penetrated before, as such works after Gutenberg emerged unbidden from the dark and silent corners of Europe. Gutenberg's press, however, did not give Europe, with its tight cultural boundaries, a common tongue. Digitization may produce a somewhat different outcome by giving worldwide exposure to essential scientific and literary texts in major languages: Rome redux, while translators will still find plenty of work.

The cost of entry for future publishers will be minimal, requiring only the upkeep of the editorial group and its immediate support services but without the expense of traditional distribution facilities and multilayered management. Small publishers already rely as needed upon such external services as business management, legal, accounting, design, copyediting, publicity, and so on, while the Internet will supply viral publicity opportunities of which YouTube and Facebook are forerunners. Funding for authors' advances may be provided by external investors hoping for a profit, as is done for films and plays. The devolution from complex, centralized management to semi-autonomous editorial units is already evident within the conglomerates (for example, Nan A. Talese at Random House and Jonathan Karp at Hachette), a tendency that will strengthen as the parent companies fade. As conglomerates resist the exorbitant demands of best-selling authors whose books predictably dominate best-seller lists, these authors, with the help of agents and business managers, will become their own publishers, retaining all net proceeds from digital as well as traditional sales. With the Espresso Book Machine, enterprising retail booksellers may become publishers themselves, like their eighteenth-century forebears.

Traditional territorial rights will become superfluous and a worldwide, uniform copyright convention will be essential. Protecting content from unauthorized file sharers will remain a vexing problem that raises serious questions about the viability of authorship, for without protection authors will starve and civilization will decline, a prospect recognized by the United States Constitution, which calls for copyright to sustain writers not primarily as a matter of equity but for the greater good of public enlightenment.

Some musicians make up for lost royalties by giving concerts, selling T-shirts, or accompanying commercials. For authors there is no equivalent solution. Refinements of today's digital rights management software, designed to block file sharing, will be an ongoing contest with file sharers who evade payment for themselves and their friends, often in the perverse belief that "content wants to be free"—much as antiviral software is engaged in a continuing contest with hackers. Unauthorized file sharing will be a problem but not in my opinion a serious one, perhaps at the level that libraries and individual readers have always shared books with others.

These and other solutions will emerge opportunistically in response to need, as such solutions usually have. It is futile at this early stage, however, to anticipate the new publishing landscape in detail or to specify the rate of evolution, which will be sporadic and complex, or the future role of traditional publishers as digitization advances along a ragged and diverse front, while publishers, writers, and readers adapt accordingly. Timing will be apparent only in retrospect.

So far I have attempted to foresee the digital future in instrumental terms. There is also a moral dimension, for we are a troublesome species with a long history of self-destruction. The industry that Gutenberg launched eventually made possible wide distribution of Montaigne, Shakespeare, and Cervantes, to say nothing of Babar the Elephant and The Cat in the Hat. But his technology also gave us The Protocols of the Elders of Zion, Mein Kampf, and the nonsense that turned Pol Pot in Paris from a mere fool into a mass murderer. Digitization will amplify our better nature but also its diabolic opposite. Censorship is not the answer to these evils.

Digital content is fragile. The secure retention, therefore, of physical books safe from electronic meddlers, predators, and the hazards of electronic storage is essential. Amazon's recent arbitrary deletion of Orwell's 1984 at its publisher's request from Kindle users who had downloaded it suggests the ease with which files can be deleted without warning or permission, an inescapable hazard of electronic distribution.^[2] In Denmark music downloaded by subscription self-destructs when the subscription expires. So does my annual subscription to the online Oxford English Dictionary unless I renew it. Much other reference material that is usually time-sensitive and for that reason need never be printed and bound is already sold by renewable subscription. If I were a publisher today I would consider a renewable rental model for all e-book downloads—the "lending library" technique of the Depression era—that more accurately reflects the conditional relationship, enforced by digital rights management software, between content provider and end user.

I would like to add a few words about the evolution of my own interest in digitization. From the beginning of my career I have been obsessed with the preservation and distribution of backlist—the previously published books, still in print, that are the indispensable component of a publisher's stability and in the aggregate the repository of civilizations. In this sense, it is fair to say that book publishing is more than a business. Without the contents of our libraries—our collective backlist, our cultural memory—our civilization would collapse.

By the mid-Eighties I had become aware of the serious erosion of publishers' backlists as shoals of slow-moving but still viable titles were dropped every month. There were two reasons for this: a change in the tax law that no longer permitted existing unsold inventory to be written off as an expense; but more important, the disappearance as Americans left the cities for the suburbs of hundreds of well-stocked, independent, city-based bookstores, and their replacement by chain outlets in suburban malls that were paying the same rent as the shoe store next door for the same minimal space and requiring the same rapid turnover.

This demographic shift turned the book business upside down as retailers, unable to stock deep backlist, now demanded high turnover, often of ephemeral titles. Best-selling authors whose loyalty to their publishers had previously been the norm were now chips in a high-stakes casino: a boon for authors and agents with their nonrecoverable overguarantees and a nightmare for publishers who bear all the risk and are lucky if they break even. Meanwhile, backlist continued to decline. The smaller houses, unable to take these risks, merged with the larger ones, and the larger ones eventually fell into the arms of today's conglomerates.

To offset the decline of backlist I launched in the mid-Eighties the Reader's Catalog, an independent bookstore in catalog form from which readers could order 40,000 backlist titles by telephone. The Internet existed but had not yet been commercialized. The Reader's Catalog was an instant success, confirming my belief in a strong worldwide market for backlist titles. But I had underestimated the cost of handling individual orders and concluded, with my backers, that if we continued our losses would become intolerable. The Internet was now available commercially. Amazon bravely took advantage of it and in the beginning suffered the losses that I feared. But by this time I had begun to hear of digitization and its buzzword, disintermediation, which meant that publishers could now look forward to marketing a practically limitless backlist without physical inventory, shipping expense, or unsold copies returned for credit. Customers would pay in advance for their purchases. This meant that even Amazon's automated shipping facilities would eventually be bypassed by electronic inventory. This was twenty-five years ago. Today digitization is replacing physical publishing much as I had imagined it would.

Relatively inexpensive multipurpose devices fitted with reading applications will widen the market for e-books and may encourage new literary forms, such as Japan's cell-phone novels. Newborn revolutions often encourage utopian fantasies until the exigencies of human nature reassert themselves. Though bloggers anticipate a diversity of communal projects and new kinds of expression, literary form has been remarkably conservative throughout its long history while the act of reading abhors distraction, such as the Web-based enhancements—musical accompaniment, animation, critical commentary, and other metadata—that some prophets of the digital age foresee as profitable sidelines for content providers.

The most radical of these fantasies posits that the contents of the digital cloud will merge or be merged—will "mash up"—to form a single, communal, autonomous intelligence, an all-encompassing, single book or collective brain that reproduces electronically on a universal scale the synergies that occur spontaneously within individual minds. To scorn a bold new hypothesis—the roundness of the earth, its rotation around the sun—is always a risk but here the risk is minimal. The nihilism—the casual contempt for texts—implicit in this ugly fantasy is nevertheless disturbing as evidence of cultural impoverishment,^[3] more offensive than but not unrelated to the assumption of e-book maximalists that authors who spend months and years at their desks will not demand physical copies as evidence of their labors and hope for posterity.

The huge, worldwide market for digital content, however, is not a fantasy. It will be very large, very diverse, and very surprising: its cultural impact cannot be imagined. E-books will be a significant factor in this uncertain future, but actual books printed and bound will continue to be the irreplaceable repository of our collective wisdom.

I must declare my bias. My rooms are piled from floor to ceiling with books so that I have to think twice about where to put another one. If by some unimaginable accident all these books were to melt into air leaving my shelves bare with only a memorial list of digital files left behind I would want to melt as well for books are my life. I mention this so that you will know the prejudice with which I celebrate the inevitability of digitization as an unimaginably powerful, but infinitely fragile, enhancement of the worldwide literacy on which we all—readers and nonreaders—depend.

Notes

^[1]A project that I helped found.

^[2]See also Amazon's more recent attempt to block sales of books by a major publisher because of a pricing dispute.

^[3]For a critical account of this view, see Jaron Lanier, You Are Not a Gadget: A Manifesto (Knopf, 2010), pp. 26, 46.

Jakarta court tries 'hotel bombing financier'

The hotels are in Jakarta's central business district

An Indonesian militant has gone on trial accused of helping to finance deadly attacks on luxury hotels in Jakarta last July.

Mohammed Jibril Abdurahman, 25, who went by the online moniker "Prince of Jihad", appeared in court as dozens of women in black chanted "God is Great".

He faces up to 15 years in jail if found guilty.

The bombings killed seven people and two suicide bombers and ended a four-year hiatus in attacks in Indonesia.

Mr Abdurahman is accused of flying to Saudi Arabia to raise money to finance the attacks. Prosecutors allege that the 25-year-old had ties to alleged regional terrorist mastermind Noordin Top.

Closely watched

But he denied the charges and accused the court of making it all up.

"I think this case is fabricated. I didn't do anything wrong," he told reporters outside court shortly before his trial began.

Prosecutors allege he was studying in an Islamic boarding school in Malaysia when he first met Mr Noordin, who became his teacher, in 1998.

I heard two sounds like 'boom, boom' coming from the Marriott and the Ritz-Carlton - then I saw people running out Eko Susanto, security guard In pictures: Jakarta hotel blasts Eyewitnesses: Jakarta attacks Attack waiting to happen?

After meeting him again about a year before the bombings, prosecutors say he sent an e-mail to his brother, Ahmad Isrofil Mardhotillah, who was in the Saudi holy city of Mecca, saying: "I have met with N., we talked long in car ... Preacher N needs 100 million..."

The BBC's Karishma Vaswani says it is not clear how much money was raised - if any - and whether any of it actually reached Indonesia.

She says the case is being watched closely by security analysts in Indonesia.

INDONESIA ATTACKS Dec 2000: - Church bombings kill 19 Oct 2002: - Bali attacks kill 202 Dec 2002: - Sulawesi McDonald's blast kills three Aug 2003 - Jakarta Marriott Hotel bomb kills 12 Sept 2004: - Bomb outside Australian embassy in Jakarta Sept 2005: Suicide attacks in Bali leave 23 dead, including bombers Indonesia braces for tourism blow Profile: Jemaah Islamiah

They think it will provide vital clues about what kind of network Mr Noordin may still have in Indonesia - and crucially, whether the funding for the attacks came from within the country or from overseas.

That information could help Indonesian security forces as they continue their fight against terrorism.

Another trial began last week of Amir Abdillah, 34, accused of being the driver for Mr Noordin, who was shot by police in a September raid on a central Java village.

Indonesia suffered a number of bomb attacks - mainly linked to the militant group Jemaah Islamiah - in the first years of the century.

The country of 240 million people has been praised in recent years for maintaining a pluralist democracy, while punishing Islamists behind a series of bombings.

Attacks on two nightclubs in Bali in October 2002 killed 202 people, most of them Australian.

The Marriott Hotel was the target of a bomb attack in August 2003 in which 12 people were killed.

Since then, a combination of new laws, anti-terror training, international co-operation and reintegration measures have kept Indonesia peaceful, analysts have said.

Kevin Rudd says Australia faces major terror threat

Australian Prime Minister Kevin Rudd has warned that his country is now under a permanent and increased threat of militant attack.

He also announced plans to fingerprint and face-scan visitors from 10 high-risk countries.

Mr Rudd said there was a growing threat from Islamist radicals born or raised in Australia.

Last week, five Australians of foreign origin received heavy sentences for conspiring to launch a jihadist attack.

Home grown

Mr Rudd said that many "home-grown terrorists" were inspired by what he called international jihadist narratives, as he released a new report compiled by intelligence agencies.

"The threat of home-grown terrorism is now increasing," he said.

"This white paper is clear: some of the threat we now face comes from the Australian-born, Australian-educated and Australian residents."

Al-Qaida-linked groups in Yemen and Sudan are the new centre of threat internationally, the policy paper says, and the risks posed by Afghanistan and Pakistan remain high.

The paper says that, despite Indonesia's successes against terrorism, the Jakarta hotel attacks of last July point to an ongoing threat there.

No escape

"Terrorism continues to pose a serious threat and a serious challenge to Australia's security interests. That threat is not diminishing," Mr Rudd said.

"In fact, the government security intelligence agencies assess that terrorism has become a persistent and permanent feature of Australia's security environment. These agencies warn that an attack could occur at any time."

Australian David Hicks, captured in 2001, spent five years in Guantanamo

Australia will spend A$69m ($62m; £40m) on new biometric facilities and will set up a national control centre to co-ordinate efforts to fight extremism.

The government also plans to work with communities to stamp out radicalism by helping all ethnic groups integrate better with mainstream society.

Last week five Australian citizens of Lebanese, Libyan and Bangladeshi origin were jailed for up to 28 years for gathering weapons in preparation for an attack on an unknown target.

In August, five men with alleged links to Somalia's al-Shabab militants were arrested and charged over an alleged plot to attack a Sydney military barracks.

Foreign Minister Stephen Smith said about 40 people have been arrested in Australia on terror charges since 2000.

"Whilst the numbers are small... it only takes one to get through," he said, adding that the techniques used by home-grown militants were evolving.

"We are now seeing emerging the potential so-called lone wolf escapade where we don't have sophisticated planning but an individual is seduced by the international jihad and as a lone wolf does extreme things," he told ABC radio.

He said the 10 countries to face more stringent entry procedures would not be named yet. "There may be a diplomatic effort required in regards to some of those countries, as you would expect," he said.

Australia is a close ally of the United States. It was among the first to commit troops to US-led campaigns in Afghanistan and Iraq.

It has not suffered a major peacetime attack on home soil, but 95 Australians have been killed in militant bombings in neighbouring Indonesia since 2001.

China tightens internet controls

China has the world's biggest online population: more than 380m users

China has tightened controls on internet use, requiring anyone who wants to set up a website to meet regulators and produce ID documents.

The technology ministry said the measures were designed to tackle online pornography, but internet activists see it as increased government censorship.

A number of websites are now being registered overseas in an attempt to avoid controls.

China has the world's biggest online population: more than 380m users.

The Ministry of Industry and Information Technology on Tuesday lifted a freeze introduced in December on registration for new individual websites.

Extensive censorship

But the technology ministry said would-be website operators would now have to submit identity cards and photos of themselves, as well as meeting regulators before their sites could be registered.

The freeze had been imposed by the state-sanctioned group which registers domain names, after complaints by state media that not enough was being done to screen websites for pornography.

The BBC's Quentin Sommerville in Beijing says that despite extensive censorship, the internet remains a surprisingly vibrant and critical environment in China.

Internet users have used it to highlight cases of injustice or to embarrass corrupt officials.

China's web users often manage to stay one step ahead of government controls, says our correspondent.

The Chinese authorities have launched a number of campaigns against online pornography, with the government saying thousands of people were detained last year alone.

A family and a conscience, destroyed by North Korea's cruelty

Image via Wikipedia

By Blaine Harden
Washington Post Foreign Service
Monday, February 22, 2010; A07

SEOUL -- "I am fool."

That self-assessment comes from Oh Kil-nam, a South Korean economist who moved to North Korea a quarter-century ago, dragging along his unhappy wife and two teenage daughters. He then defected to the West, leaving his family stranded in a country his wife had called "a living hell."

Oh lives alone now in a fusty, computer-filled apartment here in the capital of South Korea. At 68, he is retired as a researcher for a government-funded think tank. He says he drinks too much rice wine and dwells too much on what might have been.

His wife and daughters -- if alive -- are believed to be prisoners in Camp No. 15, one of several sprawling political prisons in the mountains of North Korea.

Nineteen years ago, North Korean authorities, via unofficial intermediaries based in Germany, sent Oh letters that were written in his wife's hand, saying she and the girls were in the camp. There were pictures of them posing in the snow -- and a cassette tape with voices of his daughters begging to see their daddy.

High-resolution satellite images of Camp 15 and several other political prisons have been widely circulated in the past year on Google Earth, arousing increased concern about human rights abuses inside the North Korean gulag, which has existed for more than half a century -- twice as long the Soviet gulag. But documentary evidence of life inside the North's camps remains exceedingly rare.

Oh is the only person known to have received this kind of evidence about inmates, according to Lee Jee-hae, legal advisor to Democracy Network Against the North Korean Gulag, a human rights group based in Seoul.

North Korea officially denies the existence of the camps and has never allowed outsiders to visit them. But about 154,000 people are being held in six large camps, according to the latest estimate by the South Korean government.

Defectors who have been released from Camp 15 say public executions are common there, along with beatings, rapes, starvation and the disappearance of female prisoners impregnated by guards. They say that prisoners have no access to soap, underwear, socks, tampons or toilet paper -- and that most inmates die by age 50, usually of illnesses exacerbated by overwork and chronic hunger.

The self-acknowledged foolishness of Oh began in Germany in 1985.

He was married with two young daughters and studying for a doctoral degree in economics at the University of Tuebingen. He was also an outspoken and left-leaning opponent of the authoritarian government then running South Korea.

His activism attracted the attention of North Korean agents, who approached Oh and offered help with a family medical problem. His wife, Shin Sook-ja, a South Korean nurse, was sick with hepatitis. The North Koreans convinced Oh that she would get free first-class treatment in Pyongyang and he would get a good government job.

"My wife did not want to go," Oh said. "I ignored her objections."

Via East Germany and Moscow, the family arrived in Pyongyang on Dec. 3, 1985, Oh said, and was immediately taken to nearby mountains for indoctrination at a military camp.

"The moment we stepped into that camp, I knew my wife was right and that I had made the wrong decision," Oh said.

His wife received no treatment for hepatitis. Instead, she and her husband spent several months studying the teachings of Kim Il Sung, the "Great Leader" and founding dictator of North Korea. He died in 1994 and was replaced by his son, Kim Jong Il, who continues to run what is often called the most repressive state on earth.

Oh and his wife were given jobs working in a radio station broadcasting propaganda to South Korea. Soon, though, authorities ordered Oh to return to Germany and recruit more South Korean students to live in North Korea. His wife and daughters, he was told, could not go along. Oh recalls that he and his wife argued bitterly about what he should do.

"She hit me in the face when I said I would come back with some South Koreans," Oh said. "She said I could not have that on my conscience. She told me to leave North Korea and never come back. She told me to think of her and our daughters as being dead from a car accident."

En route to Germany, Oh turned himself over to authorities in Copenhagen and was granted political asylum. He was debriefed for several weeks in Munich, he said, by U.S. agents from the CIA.

Shortly after Oh defected, his wife and daughters were detained in Pyongyang and taken to Camp 15, a former North Korean prisoner told Amnesty International. Two years later, according to another former prisoner, the three were moved from a "rehabilitation" section of the camp, where prisoners are sometimes released, to a "complete control district," where they work until they die.

There has been no further information about Oh's wife and daughters since then.

In the early 1990s, Oh wrote a book, "Please Return My Wife and Daughters, Kim Il Sung." It did not occasion a response from North Korea. Oh said he sometimes believes his family is still alive, and sometimes he is convinced that they are dead. Either way, he blames himself.

Special correspondent June Lee in Seoul contributed to this report.

Kabul Bank's Sherkhan Farnood feeds crony capitalism in Afghanistan

Image via Wikipedia

By Andrew Higgins
Monday, February 22, 2010; A01

KABUL -- Afghanistan's biggest private bank -- founded by the Islamic nation's only world-class poker player -- celebrated its fifth year in business last summer with a lottery for depositors at Paris Palace, a Kabul wedding hall.

Prizes awarded by Kabul Bank included nine apartments in the Afghan capital and cash gifts totaling more than $1 million. The bank trumpeted the event as the biggest prize drawing of its kind in Central Asia.

Less publicly, Kabul Bank's boss has been handing out far bigger prizes to his country's U.S.-backed ruling elite: multimillion-dollar loans for the purchase of luxury villas in Dubai by members of President Hamid Karzai's family, his government and his supporters.

The close ties between Kabul Bank and Karzai's circle reflect a defining feature of the shaky post-Taliban order in which Washington has invested more than $40 billion and the lives of more than 900 U.S. service members: a crony capitalism that enriches politically connected insiders and dismays the Afghan populace.

"What I'm doing is not proper, not exactly what I should do. But this is Afghanistan," Kabul Bank's founder and chairman, Sherkhan Farnood, said in an interview when asked about the Dubai purchases and why, according to data from the Persian Gulf emirate's Land Department, many of the villas have been registered in his name. "These people don't want to reveal their names."

Afghan laws prohibit hidden overseas lending and require strict accounting of all transactions. But those involved in the Dubai loans, including Kabul Bank's owners, said the cozy flow of cash is not unusual or illegal in a deeply traditional system underpinned more by relationships than laws.

The curious role played by the bank and its unorthodox owners has not previously been reported and was documented by land registration data; public records; and interviews in Kabul, Dubai, Abu Dhabi and Moscow.

Many of those involved appear to have gone to considerable lengths to conceal the benefits they have received from Kabul Bank or its owners. Karzai's older brother and his former vice president, for example, both have Dubai villas registered under Farnood's name. Kabul Bank's executives said their books record no loans for these or other Dubai deals financed at least in part by Farnood, including home purchases by Karzai's cousin and the brother of Mohammed Qasim Fahim, his current first vice president and a much-feared warlord who worked closely with U.S. forces to topple the Taliban in 2001.

At a time when Washington is ramping up military pressure on the Taliban, the off-balance-sheet activities of Afghan bankers raise the risk of financial instability that could offset progress on the battlefield. Fewer than 5 percent of Afghans have bank accounts, but among those who do are many soldiers and policemen whose salaries are paid through Kabul Bank.

A U.S. official who monitors Afghan finances, who spoke on the condition of anonymity because he was not authorized to comment publicly, said banks appear to have plenty of money but noted that in a crisis, Afghan depositors "won't wait in line holding cups of latte" but would be "waving AK-47s."

Kabul Bank executives, in separate interviews, gave different accounts of what the bank is up to with Dubai home buyers. "They are borrowers. They have an account at Kabul Bank," said the bank's chairman, Farnood, a boisterous 46-year-old with a gift for math and money -- and the winner of $120,000 at the 2008 World Series of Poker Europe, held in a London casino.

The bank's chief audit officer, Raja Gopalakrishnan, however, insisted that the loan money didn't come directly from Kabul Bank. He said it was from affiliated but separate entities, notably a money-transfer agency called Shaheen Exchange, which is owned by Farnood, is run by one of Kabul Bank's 16 shareholders and operates in Kabul out of the bank's headquarters.

The audit officer said Farnood "thinks it is one big pot," but the entities are "legally definitely separate."

A new economy

In some ways, Kabul Bank is a symbol of how much has changed in Afghanistan since 2001, when the country had no private banks and no economy to speak of. Kabul Bank has opened more than 60 branches and recently announced that it will open 250 more, and it claims to have more than $1 billion in deposits from more than a million Afghan customers.

Kabul Bank prospers because Afghanistan, though extremely poor, is in places awash with cash, a result of huge infusions of foreign aid, opium revenue and a legal economy that, against the odds, is growing at about 15 percent a year. The vast majority of this money flows into the hands of a tiny minority -- some of it through legitimate profits, some of it through kickbacks and insider deals that bind the country's political, security and business elites.

The result is that, while anchoring a free-market order as Washington had hoped, financial institutions here sometimes serve as piggy banks for their owners and their political friends. Kabul Bank, for example, helps bankroll a money-losing airline owned by Farnood and fellow bank shareholders that flies three times a day between Kabul and Dubai.

Kabul Bank's executives helped finance President Hamid Karzai's fraud-blighted reelection campaign last year, and the bank is partly owned by Mahmoud Karzai, the Afghan president's older brother, and by Haseen Fahim, the brother of Karzai's vice presidential running mate.

Farnood, who now spends most of his time in Dubai, said he wants to do business in a "normal way" and does not receive favors as a result of his official contacts. He said that putting properties in his name means his bank's money is safe despite a slump in the Dubai property market: He can easily repossess if borrowers run short on cash.

A review of Dubai property data and interviews with current and former executives of Kabul Bank indicate that Farnood and his bank partners have at least $150 million invested in Dubai real estate. Most of their property is on Palm Jumeirah, a man-made island in the shape of a palm tree where the cheapest house costs more than $2 million.

Mirwais Azizi, an estranged business associate of Farnood and the founder of the rival Azizi Bank in Kabul, has also poured money into Dubai real estate, with even more uncertain results. A Dubai company he heads, Azizi Investments, has invested heavily in plots of land on Palm Jebel Ali, a stalled property development. Azizi did not respond to interview requests. His son, Farhad, said Mirwais was busy.

Responsibility for bank supervision in Afghanistan lies with the Afghan central bank, whose duties include preventing foreign property speculation. The United States has spent millions of dollars trying to shore up the central bank. But Afghan and U.S. officials say the bank, though increasingly professional, lacks political clout.

The central bank's governor, Abdul Qadir Fitrat, said his staff had "vigorously investigated" what he called "rumors" of Dubai property deals, but "unfortunately, up until now they have not found anything." Fitrat, who used to live in Washington, last month sent a team of inspectors to Kabul Bank as part of a regular review of the bank's accounts. He acknowledged that Afghan loans are "very difficult to verify" because "we don't know who owns what."

Kabul Bank's dealings with Mahmoud Karzai, the president's brother, help explain why this is so. In interviews, Karzai, who has an Afghan restaurant in Baltimore, initially said he rented a $5.5 million Palm Jumeirah mansion, where he now lives with his family. But later he said he had an informal home-loan agreement with Kabul Bank and pays $7,000 a month in interest.

"It is a very peculiar situation. It is hard to comprehend because this is not the usual way of doing business," said Karzai, whose home is in Farnood's name.

Karzai also said he bought a 7.4 percent stake in the bank with $5 million he borrowed from the bank. But Gopalakrishnan, the chief audit officer, said Kabul Bank's books include no loans to the president's brother.

Also in a Palm Jumeirah villa registered in Farnood's name is the family of Ahmad Zia Massoud, Afghanistan's first vice president from 2004 until last November. The house, bought in December 2007 for $2.3 million, was first put in the name of Massoud's wife but was later re-registered to give Farnood formal ownership, property records indicate.

Massoud, brother of the legendary anti-Soviet guerrilla leader Ahmad Shah Massoud, said that Farnood had always been the owner but let his family use it rent-free for the past two years because he is "my close friend." Massoud added: "We have played football together. We have played chess together." Farnood, however, said that though the "villa is in my name," it belongs to Massoud "in reality."

Haseen Fahim, the brother of Afghanistan's current first vice president, has been another beneficiary of Kabul Bank's largesse. He got money from Farnood to help buy a $6 million villa in Dubai, which, unusually, is under his own name. He borrowed millions more from the bank, which he partly owns, to fund companies he owns in Afghanistan.

In an interview at Kabul Bank's headquarters, Khalilullah Fruzi, who as chief executive heads the bank's day-to-day operations, said he didn't know how much bank money has ended up in Dubai. If Karzai's relatives and others buy homes "in Dubai, or Germany or America . . . that is their own affair," Fruzi said, adding that the bank "doesn't give loans directly for Dubai."

Fruzi, a former gem trader, said Kabul Bank is in robust health, makes a profit and has about $400 million in liquid assets deposited with the Afghan central bank and other institutions. Kabul Bank is so flush, he added, that it is building a $30 million headquarters, a cluster of shimmering towers of bulletproof glass.

The bank is also spending millions to hire gunmen from a company called Khurasan Security Services, which, according to registration documents, used to be controlled by Fruzi and is now run by his brother.

The roots of Kabul Bank stretch back to the Soviet Union. Both Fruzi and Farnood got their education and their start in business there after Moscow invaded Afghanistan in 1979.

While in Moscow, Farnood set up a successful hawala money-transfer outfit to move funds between Russia and Kabul. Russian court documents show that 10 of Farnood's employees were arrested in 1998 and later convicted of illegal banking activity. Fearful of arrest in Russia and also in Taliban-ruled Afghanistan, Farnood shifted his focus to Dubai.

In 2004, three years after the fall of the Taliban regime, he got a license to open Kabul Bank. His Dubai-registered hawala, Shaheen Exchange, moved in upstairs and started moving cash for bank clients. It last year shifted $250 million to $300 million to Dubai, said the chief audit officer.

The bank began to take in new, politically connected shareholders, among them the president's brother, Mahmoud, and Fahim, brother of the vice president, who registered his stake in the name of his teenage son.

Fahim said two of his companies have borrowed $70 million from Kabul Bank. Insider borrowing, he said, is unavoidable and even desirable in Afghanistan because, in the absence of a solid legal system, business revolves around trust, not formal contracts. "Afghanistan is not America or Europe. Afghanistan is starting from zero," he said.

Fahim's business has boomed, thanks largely to subcontracting work on foreign-funded projects, including a new U.S. Embassy annex and various buildings at CIA sites across the country, among them a remote base in Khost where seven Americans were killed in a December suicide attack by a Jordanian jihadiist. "I have good opportunities to get profit," Fahim said.

'Like wild horses'

Kabul Bank also plunged into the airline business, providing loans to Pamir Airways, an Afghan carrier now owned by Farnood, Fruzi and Fahim. Pamir spent $46 million on four used Boeing 737-400s and hired Hashim Karzai, the president's cousin, formerly of Silver Spring, as a "senior adviser."

Farnood said he also provided a "little bit" of money to help Hashim Karzai buy a house on Palm Jumeirah in Dubai. Karzai, in brief telephone interviews, said that the property was an investment and that he had borrowed some money from Farnood. He said he couldn't recall details and would "have to check with my accountant."

Noor Delawari, governor of the central bank during Kabul Bank's rise, said Farnood and his lieutenants "were like wild horses" and "never paid attention to the rules and regulations." Delawari said he didn't know about any property deals by Kabul Bank in Dubai. He said that he, too, bought a home in the emirate, for about $200,000.

Fitrat, the current central bank governor, has tried to take a tougher line against Kabul Bank and its rivals, with little luck. Before last year's presidential election, the central bank sent a stern letter to bankers, complaining that they squander too much money on "security guards and bulletproof vehicles" and "expend large-scale monetary assistance to politicians." The letter ordered them to remain "politically neutral."

Kabul Bank did the opposite: Fruzi, its chief executive, joined Karzai's campaign in Kabul while Farnood, its poker-playing chairman, organized fundraising events for Karzai in Dubai. One of these was held at the Palm Jumeirah house of Karzai's brother.

The government has returned the favor. The ministries of defense, interior and education now pay many soldiers, police and teachers through Kabul Bank. This means that tens of millions of dollars' worth of public money sloshes through the bank, an unusual arrangement, as governments generally don't pump so much through a single private bank.

Soon after his November inauguration for a second term, President Karzai spoke at an anti-corruption conference in Kabul, criticizing officials who "after one or two years work for the government get rich and buy houses in Dubai." Last month, he flew to London for a conference on Afghanistan, attended by Secretary of State Hillary Rodham Clinton and other leaders, and again promised an end to the murky deals that have so tarnished his rule.

Also in London for the conference were Farnood, who now has an Afghan diplomatic passport, and Fruzi, who served as a financial adviser to Karzai's reelection campaign and also owns a house in Dubai. "If there is no Kabul Bank, there will be no Karzai, no government," Fruzi said.

Correspondent Joshua Partlow in Kabul and special correspondent Anna Masterova in Moscow contributed to this report.

Thai Political Uncertainty Causes Investor Concern

Ron Corben | Bangkok22 February 2010

Photo: AP

Former Thai prime minister Thaksin Shinawatra (file)

Thailand's finance minister says the political uncertainty gripping the country could damage economic growth and investor confidence. Some investors are concerned a Thai Supreme Court verdict against former Thai Prime Minister, Thaksin Shinawatra, due later this week could lead to protests that could destabilize the fragile economy.

Thai Finance Minister Korn Chatikavanij warned Monday that political uncertainties in the country could adversely affect economic growth.

Korn's comments come just ahead of a Friday Supreme Court verdict on whether former Prime Minister Thaksin Shinawatra is guilty of corruption.

If the court finds Mr. Thaksin guilty of corruption, the state could seize up to two billion dollars worth of illegally acquired assets. Some observers believe a guilty verdict could also lead to fresh street demonstrations by his supporters, known for wearing red shirts.

Mr. Thaksin was ousted from power in a coup in 2006. Two years later he fled Thailand ahead of another conviction on corruption charges. A court sentenced the former prime minister to a two year jail term in absentia.

Thai business and industrial leaders say the business climate and the economy could be hit if protests erupt.

Krianglit Sukcharoensin, president of the 500-member Plastic Industries Association says the uncertainties have undermined investor and business confidence.

"The international market they are not confident we can supply product 'just in time' for their requirement of their demand. They will switch and then order from another place," said Krianglit. "Then the investor will suffer so we will have to see."

The concerns from business leaders come just as the economy appears to be recovering from the global recession, on the strength of strong exports. The government has predicted a better than four percent growth for 2010.

But analysts warn the gains may be lost amid fears a guilty verdict will lead to potential violence from pro-Thaksin supporters. The Thai share market has weakened due to the jittery climate.

Vikas Kawatra, head of institutional research for Kim Eng Securities, says the local share market's outlook depends on Thaksin's future plans after the verdict.

"It pretty much depends on what Thaskin will do next," said Vikas. "One thing is for sure, is that he's not going to like it and the extent of money confiscated will increase his frustration but diminish his ability to come back."

Concerns over possible violence has led to the United States, Britain and Australia to issue travel advisories warning their nationals to avoid locations where protests could occur. The tourism industry, with around 14 million arrivals annually, accounts for about six percent of Thailand's national output.

Richard Chapman, general manager of the Sheraton Grande Hotel, says the tourism industry has suffered in recent times because reports of political instability has undermined traveler confidence.

"I'm just hoping and praying that our friends in the world of communications and media will give a fairly good ride over the next few weeks and we can come out of it no worse that we are today," said Chapman.

Potential damage to the economy was evident in 2008 when anti-Thaksin protesters occupied a government administration building against pro-Thaksin government steps to open the way for his return to the country. Later the anti-government protesters occupied the international airport for a week at a cost of millions of dollars in lost tourism and trade revenue.

Mr. Thaksin gained popularity among the urban and rural poor for his populist economic policies. But the urban middle class, that largely backed the 2006 coup, accused him of corruption and abuse of power.

Orangutan survival and the shopping trolley

The challenge of saving the orangutan - man's closest relative - from extinction is trickling down to the weekly shop.

Many of the biscuits, margarines, breads, crisps and even bars of soap that consumers pick off supermarket shelves contain an ingredient that is feeding a growth industry that conservationists say is killing the orangutans.

The mystery ingredient in the mix is palm oil - the cheapest source of vegetable oil available - and one that rarely appears on the label of most products.

Palm oil is grown on land that was once home to the vast rainforests of Borneo, and the natural habitat of the orangutan.

I think its really about what consumers can do because the most powerful message that can be sent to companies is from their consumers about what it is they want to buy Environment Secretary Hilary Benn

The International Union for Conservation of Nature estimates that the population has declined by 50% in recent decades and the Indonesian government admits that 50,000 orangutans have died as a result of de-forestation.

A BBC Panorama investigation into clear-cutting in Indonesian Borneo - the island it shares with Malaysia - found that the thirst for land on which to plant palm plantations is encroaching on areas that the Indonesian government has deemed to be off-limits.

'Nuisance'

The orangutans, displaced as the trees of old-growth forests are burned and at times killed by workers who see them as a nuisance in the logging process, are not the only victims of the runaway growth in palm oil - scientists say there is a wider environmental price being paid.

Greenpeace has identified the draining of ancient peat lands to make way for palm oil as a global threat, saying it had lead to massive amounts of trapped methane and carbon dioxide being released into the atmosphere.

As a result, Indonesia is the world's third largest emitter of greenhouse gases, behind only America and China.

ORANGUTAN FACTS Orangutan means "old man of the forest" in Malay Only apes living outside of Africa Largest tree-dwelling mammals

Using GPS technology and satellite imaging, the BBC team pinpointed exact locations where palm oil giant the Duta Palma Group is logging on both high conservation lands and deep peat lands - both are illegal.

Shailendra Yashwant, Greenpeace director for Southeast Asia, said this illegal logging is widespread and includes major suppliers to the UK's food and household product market.

"We want the Indonesian government to immediately announce a moratorium on further deforestation…beginning with peat lands."

Willie Smits, a former advisor to the Indonesian Ministry of Forestry turned environmental campaigner, said of the findings: "This is criminal, this should not take place. It means there is no hope left for the most endangered sub-species of the orang-utan in west Kalamantan."

He said the wider environmental issue of greenhouse gases can no longer be overlooked by both manufacturers and everyday consumers.

"This is not just a matter for Indonesia to decide, this is a matter for the world."

'Greenwash'

The palm industry - valued at £5bn ($7.7bn) for Indonesia - is the country's third biggest export earner.

Many of the big manufacturers who buy that oil via European wholesalers say that while they are starting to find oil from sustainable sources, they are not yet in a position to trace the origin of all of the oil they use.

Currently, only 3% of the world's palm oil is certified sustainable, meaning it comes from plantations that pass an environmental and social impact test.

Many have joined the Roundtable on Sustainable Palm Oil (RSPO) scheme set up to promote certification of where palm oil originates.

Others have set ambitious goals to use sustainable oil by 2015 or earlier, but Greenpeace's Shailendra Yashwant said the RSPO amounts to a "greenwash" because those commitments are unenforceable on the ground.

Bulk oil from a variety of plantations - including that of Duta Palma Group that the BBC found to be illegally clear-cutting - is mixed together and shipped around the world and sold on to manufacturers behind everyday products.

Duta Palma declined to comment on the BBC's evidence of illegal deforestation.

Consumer pressure

Hilary Benn, the Secretary of State for the Environment, Food and Rural Affairs, told Panorama the time is right for consumers to put pressure on manufacturers, demanding to know which of their products contain palm oil and assurances that it comes from a sustainable source.

Many of the sweets and staples in our shopping trolleys contain palm oil

Current labelling laws allow manufacturers to list palm oil as 'vegetable' oil, without singling out the palm oil content.

Many manufacturers, including industry giants Unilever and Proctor and Gamble, say their recipes can change and the amounts and types of oils they use can vary from week to week, making more detailed labels unworkable.

However, Sainsbury's supermarkets had earlier taken the decision to not only single out palm oil on the ingredients lists of their own-brand products, but to state directly that it is from a sustainable source.

Recently Unilever, the UK's largest user of palm oil in products that range from Dove soap to Pot Noodles, Knorr soups and Flora, terminated a large contract with a supplier called Sinar Mas, because of reports it was destroying high conservation value forests.

Unilever has told Panorama that while it may have used oil from Duta Palma in the past, it intends to overcome its supply system problems so that it no longer uses oil from the producer.

Secretary Benn said: "I think it's really about what consumers can do because the most powerful message that can be sent to companies is from their consumers about what it is they want to buy," he told reporter Raphael Rowe, citing the demand for free range eggs in the UK as an example of consumer influence.

Mr Benn said the participation by UK retailers and manufacturers in the Roundtable on Sustainable Palm Oil is a step towards ensuring that palm oil is traceable and therefore increases the chances that it can be certified sustainable.