6th February 2012: Peter Feaver on Obama’s National Security Record

Peter Feaver‘s book Armed Servants (Boston: Harvard University Press, 2005) is a masterful study of civil-military relations.


I reach different conclusions, though, to Feaver’s Shadow Government critique of the Obama administration’s national security record.


Feaver argues:


1. Obama’s foreign policy successes have come when he has followed Bush policies; his failures have come when he has struck out on his own.


Here, Feaver quotes an argument that Thomas Friedman first raised. Friedman makes several assumptions:


(A1) Obama’s campaign rhetoric would translate into Obama administration policy;

(A2) Bush’s policies have traceable continuity with Obama administration actions; and

(A3) Obama is responsible for operational and scoping failures.


A1 is unrealistic to succeed: few campaign promises survive their impact with the Beltway. There is too much bureaucratic interest to keep Guantanamo Bay operational, for instance. A2 and A3 enable Republicans to engage in George Lakoff-like framing games: juxtapose Bush’s success (A2) with Obama’s failures (A3). This is brilliant if you’re a Karl Rove-like political consultant. Except, as Thomas Ricks pointed out, Obama wasn’t responsible for failures like the 2003 Iraq War decision. (Or, North Korea going nuclear and the problems with the Non-Proliferation Treaty regime.) As Feaver knows, administrations can have both political continuity with their predecessors and can adapt to emergent security dilemmas. A3 introduces civil-military tensions, coordination problems amongst government departments, and the challenge of translating strategy into implementable operations. There’s the genesis here of an interesting academic journal article.


Feaver then suggests:


Obama has made relatively effective use of the tools and instruments of power that he inherited from his predecessor — it raises the question, what new tools and instruments of power is Obama bequeathing to his successor?


This very interesting question also has several assumptions:


(B1) Political administrations and the United States President (executive power) shape the ‘contexts of use’ of instruments of power.

(B2) The instruments of power are transferable between different political administrations.

(B3) Instruments of power are capabilities that can emerge, develop, be sustained, or decay over time (diachronic orientation).


The late Terry Deibel’s book Foreign Affairs Strategy: Logic for American Statecraft (New York: Cambridge University Press, 2007) is one of the best conceptual analyses on instruments of power and B3: diplomatic, informational, military and economic. Regarding B2, the Bush administration’s record will remain debated: it re-engaged with counter-insurgency for Afghanistan and Iraq; reviewed intelligence after the September 11 attacks and the 2003 Iraq War decision; and failed to deal with A.Q. Khan’s covert nuclear proliferation network. But other capabilities might have developed regardless of the political administration assumed in B1: the legislative and judicial branches can shape the scope and use of instruments of power;  Stephen Brooks’ Producing Security (Princeton: Princeton University Press, 2007) makes the case that multi-national corporations can affect innovation and threat perception; and P.W. Singer’s Wired for War (New York: Penguin, 2009) documents how robotics research for drones has taken decades. As Feaver concedes, many of the capabilities he mentions were developed in the Clinton administration and a few can be traced to the Reagan administration and earlier. Likewise, the Obama administration’s focus on Special Operations Forces capabilities recalls John F. Kennedy’s nurturing of SoF capabilities. E-diplomacy is one capability that has matured during the Obama administration (if you believe it has credibility); so has a renewal of the United States-Pacific alliance structure.


Feaver asks:


So, the Republican nominee should ask, in what ways will Obama’s successor have a larger and more powerful toolbox than the one Obama got to use?


Obama is constrained by the Afghanistan and Iraq wars, and by the fallout from the 2007-09 global financial crisis. So, a potential incoming Republican or a second term Obama administration might face more of a clean slate, and more demands to renew the United States’ national economic infrastructure. One challenge to a Republican administration would be how to deal with Obama’s multi-lateral approach.

DreamWorks’ Debt Finance Battle

Hollywood recently honoured Steven Spielberg with a two-hour retrospective on his 40-year career as a film director and producer. FT‘s Matthew Garrahan reports however that the celebrations may be shortlived: Spielberg cannot raise debt capital for his independent film company DreamWorks after talks failed with HBO and NBC Universal.

DreamWorks has endured a difficult 14-year history. Spielberg co-founded the film studio as DreamWorks SKG in 1994 with music mogul David Geffen and Jeffrey Katzenberg who had just left Disney after a high-profile battle with Michael Eisner. Spielberg envisioned DreamWorks SKG as a 21st century successor to United Artists whilst Geffen and Katzenberg wanted their independence from the Hollywood establishment. However since 2004 the trio have rolled back their original vision and relied instead on the divestiture of the DreamWorks Animation division and distribution deals. They sold the studio to Viacom in 2005 partly because Geffen wanted an exit strategy from a daily operations role. Spielberg announced a $US1.5bn deal for independent films in September 2008 with India’s Reliance ADA Group which specialised in Bollywood films. The announcement was a world is flat moment worthy of Thomas Friedman: would India invade Hollywood as Japan’s Sony had done with its acquisitions of CBS Records (1987) and Columbia Pictures Entertainment (1989)? But as Garrahan notes, Reliance ADA Group’s funding of Spielberg’s independent vision was contingent on debt finance and distribution deals from other funding sources, which have now ended the negotiations.

There are several reasons for this outcome apart from the global financial crisis. Just before he announced the Reliance ADA Group deal industry analysts suggested that Spielberg had priced himself out of the United States market. Jeffrey Katzenberg’s attention is elsewhere: a charm offensive to raise the investor profile of DreamWorks Animation and its 3D releases. NBC Universal, HBO and other funding sources have their own reasons to be wary of DreamWorks: the fledgling studio was too early on digital television in the dotcom era, Geffen and Katzenberg adopted hardball negotiation tactics on earlier distribution deals which make a repeat game difficult. The ancillary and complementary markets in cable television, DVD and Blu-Ray sales face a volatile near-term future. Collectively, these factors may weaken Spielberg’s negotiation stance as the global financial crisis closes off other funding sources.

To have different negotiation options Spielberg may need to alter his game plan and overcome two barriers.

First, DreamWorks never developed the economies of scale and leverage to achieve Spielberg’s strategic vision as an independent studio. It overestimated demand for its Shrek and Transformers franchises and made money instead on mid-level romantic comedies and animation films. DreamWorks faced firm-specific risks from distribution partners which it hedged using ancillary and complementary markets to control revenue forecasts. Instead of the prohibitive cost structures of a studio Spielberg could model an independent DreamWorks on a smaller vision: Francis Ford Coppola‘s Zoetrope and Harvey Weinstein‘s Weinstein Company.

Second, Spielberg could look at other options to raise capital. He could follow David Bowie‘s example of asset-based Bowie Bonds and underwrite the films through commercial bonds on the future revenues of individual films or a production slate portfolio. Commercial paper may be an option as the global finance crisis recedes. A far more disruptive strategy would be if Spielberg adopted a microfinance model that would enable a broader range of investors to participate than the traditional debt and equity markets. DreamWorks’ legacy would then surpass the Hollywood studio system to encompass the bottom billion‘s dreams of financial independence.

Ebook Textbooks & The Market for Lemons

The software consultant Ed Yourdon once warned US programmers in his book Decline and Fall of the American Programmer (1992) that they faced global hypercompetition.  This was a fashionable message in the turbulent early 1990s of industry deregulation, export tariffs, mega-mergers, downsizing and reengineering.  Spenglerian pessimism made Decline and Fall an IT bestseller as Eastern European and Russian computer programmers emerged as low cost competition with their US counterparts.  Now in Thomas Friedman‘s vision of a flatter world the Eastern European and Russian computer programmers have help from an unlikely source: electronic copies of IT textbooks.

Several barriers mean that US textbook publishers are cautious about embracing ebook versions.  Publishers fear the Napsterisation of ebooks on peer-to-peer networks.  There’s no standard ebook device although Amazon’s Kindle is the latest candidate.  There’s no standard ebook format: most use Adobe PDF, however when Acrobat 8 was released Adobe shifted its ebook functionality to a new Digital Reader that did not necessarily read a user’s existing ebook collection.  Potential customers do not have a utility function to necessarily favour ebooks over printed copies: publishers charge high prices for ebook versions that may contribute a higher contribution margin to profits but that give the customer little price differential compared with print counterparts.

The implementation of digital rights management (DRM) also leaves much to be desired: McGraw-Hill’s Primis uses a digital fingerprint on a hard-drive that voids an ebook even if reinstalled on a reformatted drive due to a virus, whilst Thomson’s Cengage Learning uses a time-sensitive model which gives the user access for one semester to an ebook with the full price of its exact print version.  Publishers are also slow to adjust cross-currency rates: Australian textbooks still cost $A120-$200 despite near parity between the Australian and US dollars.

Thus, it’s no surprise that ebook divisions remain small in multinational publishing conglomerates.  One exception is Harvard Business School Press which appears to have ditched Sealed Media’s DRM plugin for Adobe Acrobat after Oracle acquired SM in August 2006 and then had integration problems with information rights management.

These barriers suggest a failure in market design with analogies to George Akerlof‘s study of the used car market in his influential paper The Market for Lemons (1970).  Publishers counter that although there is a lack of ebook standards similar to Akerlof’s paper the economics of publishing provide a disincentive to lower prices.  They claim high fixed costs in printing, photography rights and licensing fees for the case studies taken from Businessweek, Fortune and The Wall Street Journal.  Author fees and promotional budgets to professional associations add variable costs –  however, Australian academics have a disincentive to publish textbooks compared with their US colleagues, as Australia’s Department of Education, Employment & Workplace Relations does not provide recognition points.

To survive US textbook publishers have turned to global market models with regional editions of popular texts (such as Asia-Pacific editions with local coauthors), and adopted the music industry’s business model of electronic and online content (similar to how record labels have released Dualdisc, DVD and collectors editions of albums).  However as Yourdon warned US programmers this may not be a business model with longterm sustainability.  MIT’s OpenCourseWare, Apple’s iTunesU and Scribd all provide free content that mirrors the generic content in most textbooks, although some differentiate via a problem-based approach.

Yourdon’s ‘challenger’ computer programmers now also have illegal BitTorrent sites such as The Pirate Bay, filehosting networks such as Rapidshare, and ebook sites including Avaxsphere.com and PDFCHM to choose from.  The last two provide solutions to Akerlof’s challenge in market design: they have an easier user interface, a broader (illegal) catalogue of ebook titles, and DRM-free files compared to Cengage Learning or McGraw-Hill.  Even business strategists are getting in on the act, as Clayton Christensen, Curtis Johnson & Michael Horn explore in Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns (McGraw-Hill, New York, 2008).

There’s one textbook coauthor who came up with a unique solution to Akerlof’s dilemma in market design.  His Macroeconomics book coauthors Andrew Abel and Dean Croushore opted for the mod-cons from publisher Addison-Wesley: an online site and a one-semester ebook version as a bundle deal.  The textbook coauthor?

Federal Reserve Chairman Ben Bernanke.