Tuesday, January 30, 2007

How to Make the Poor Poorer

By GARY S. BECKER and RICHARD A. POSNER
January 26, 2007

The strong bipartisan support for increasing the federal minimum wage to $7.25 an hour from the current $5.15 -- a 40% increase -- is a sad example of how interest-group politics and the public's ignorance of economics can combine to give us laws that manage to be both inefficient and inegalitarian.

An increase in the minimum wage raises the costs of fast foods and other goods produced with large inputs of unskilled labor. Producers adjust both by substituting capital inputs and/or high-skilled labor for minimum-wage workers and, because the substitutes are more costly (otherwise the substitutions would have been made already), by raising prices. The higher prices reduce the producers' output and thus their demand for labor. The adjustments to the hike in the minimum wage are inefficient because they are motivated not by a higher real cost of low-skilled labor but by a government-mandated increase in the price of that labor. That increase has the same misallocative effect as monopoly pricing.


Although some workers benefit -- those who were paid the old minimum wage but are worth the new, higher one to the employers -- others are pushed into unemployment, the underground economy or crime. The losers are therefore likely to lose more than the gainers gain; they are also likely to be poorer people. And poor families are disproportionately hurt by the rise in the price of fast foods and other goods produced with low-skilled labor because these families spend a relatively large fraction of their incomes on such goods. And many, maybe most, of the gainers from a higher minimum wage are not poor. Most minimum-wage workers are part time, and for the majority their minimum-wage income supplements an income derived from other sources. Examples are retirees living on Social Security or private pensions who want to get out of the house part of the day and earn pin money, stay-at-home spouses who want to supplement their spouse's earnings, and teenagers working after school. An increase in the minimum wage will thus provide a windfall to many workers who are not poor.

Some economists deny that a minimum wage reduces employment, though most disagree. And because most increases in the minimum wage have been slight, their effects are difficult to disentangle from other factors that affect employment. But a 40% increase would be too large to have no employment effect; about a tenth of the work force makes less than $7.25 an hour. Even defenders of minimum-wage laws must believe that beyond some point a higher minimum would cause unemployment. Otherwise why don't they propose $10, or $15, or an even higher figure?

A number of countries, including France, have conducted such experiments; the ratio of the minimum wage to the average wage is much higher in these countries than in the U.S. Economists Guy Laroque and Bernard Salanie find that the high minimum wage in France explains a significant part of the low employment rate of married women. Mr. Salanie has argued that the minimum wage also contributes to the dismal employment prospects of young persons in France, including Muslim youths, an estimated 40% of whom are unemployed.

As a means of raising people from poverty or near poverty, the minimum wage is inferior to the Earned Income Tax Credit, which compensates for low wages without interfering with the labor market or conferring windfalls on the nonpoor. EITC is not completely devoid of effects on efficient resource allocation, because like any other government spending it is defrayed out of taxes, and it has been abused by underreporting of income and overreporting of dependents. But it is a more efficient tax than the minimum wage as well as being more effective in redistributing income to the poor.

So why push to increase the minimum wage rather than the EITC? For one thing, unions strongly favor the minimum wage because it reduces competition from low-wage workers (who, partly because most of them work part time, tend not to be unionized) and thus enhances unions' bargaining power and so their appeal to workers. For another, increasing the EITC would mean an increase in government spending, which might require higher taxes; there is no public support for explicit tax increases and most people don't understand that regulatory laws can have the same effect as taxes.

Moreover, poor people tend not to vote; and the number of nonpoor who'd be directly benefited by an increase in the minimum wage, when combined with the number of nonpoor workers whose incomes would rise because of reduced competition from minimum-wage workers, probably exceeds the number of nonpoor who would lose jobs. Teenagers would be among the hardest hit -- and few of them are voters (if under 18, they're ineligible). While workers who receive a wage increase when the minimum wage is hiked realize they've benefited from the hike, many hurt by the hike don't realize it; teenagers and retirees who have trouble finding a job are unlikely to realize that it's because there are fewer jobs in the economy for minimum-wage workers.

Let's hope that if Congress passes a stiff increase in the federal minimum wage, George Bush will emulate Mayor Richard Daley and veto it. Several months ago the Chicago City Council, by a lopsided but not veto-proof vote, passed an ordinance requiring companies that have more than $1 billion in annual sales, and own stores in Chicago having at least 90,000 square feet of floor space, to pay Chicago employees a minimum wage of $9.25 an hour plus $1.50 an hour in fringe benefits, respectively rising to $10 and $3 by 2010. About 40 stores would have been affected.

The ordinance was surpassingly foolish. The retailers that would have been most affected, such as Wal-Mart, Target and Home Depot, are at best only marginally interested in placing stores in large cities because space for large stores and for the parking they require is much more expensive than in suburbs and smaller towns. Moreover, these companies could offset much of the effect of the ordinance by opening more stores in suburbs within easy reach of Chicago, or by holding their floor space to just below 90,000 square feet. Fewer jobs would be available to low-skilled workers in the city, and families with modest incomes who seek low prices rather than elaborate service would be hurt more than the affluent by the increase in prices and reduced availability of big box outlets.

Who would favor such a bad ordinance? Conventional supermarket chains and clothing stores, of course, and unions -- the latter not only for the usual reasons but also because big box companies oppose unions; the ordinance sent a signal that unions have enough political clout to make life difficult for large nonunion retailers. The absence of opposition to the ordinance from low-income consumers is not surprising because they are not organized to exert political pressure. The aggressive support of the ordinance by most of the council's black members is more difficult to understand, but the explanation may be that they are allied with unions. They may have realized that their constituents would be harmed by the ordinance, but believed that in return for taking this hit they would get the support of unions for measures that would help low-income families.

The failure of the Chicago ordinance and related local measures helps to explain the push to raise the federal minimum wage. The ordinance would have been particularly destructive -- hence Mayor Daley's veto of it -- because the smaller the scope of a minimum-wage increase, the more easily it is evaded, though possibly at great social cost. A federal increase would have a smaller social cost per worker covered, but presumably a larger overall social cost. Chicago's "big box" ordinance is evidence, if any is needed, that politics can override economic sanity. One can only hope that this lesson will not be repeated on the national stage.

Mr. Becker, the 1992 Nobel economics laureate, is professor of economics at the University of Chicago and senior fellow at the Hoover Institution. Mr. Posner is a federal circuit judge and a senior lecturer at the University of Chicago Law School.

Sunday, January 28, 2007

Federer Faces the Future

January 26, 2007

In this weekend's Australian Open finals, Roger Federer hopes to take another step in his quest for tennis history. If he can win the tournament for the third time in four years, it will be his 10th Grand Slam singles title, tying the great Bill Tilden. It will also make him only the sixth man to break into double figures in Grand Slam wins.

But the really historic number that Mr. Federer is aiming for is 14 -- Pete Sampras's record number of major wins. As one way of handicapping Mr. Federer's odds of achieving that goal, we'll use Slam Average (SA). Slam Average measures the ability to win the big ones by taking a player's career slam wins and dividing it by the number of slams he entered. This stat looks at a player's accomplishments the way history does -- where a tough semifinal loss really doesn't mean more than a lackluster first-round exit. Viewed from a distance, winning is indeed everything.

Picking Up Steam

And Mr. Federer has done that, winning nine slams in 30 tries, for a .300 slam average. Among players who played their entire careers after tennis's Open era began in 1968, Mr. Federer trails only Bjorn Borg, the Swedish champ who won 11 out of 27 slams for a .407 SA. But Mr. Federer took his time breaking through, playing 16 slams before his first major victory at Wimbledon in 2003. Since then, he's captured eight majors in only 13 tries, including three of four last year.

HOLDING COURT

Among male players of the Open Era, Roger Federer trails only Bjorn Borg in slam average, a player's winning percentage when he enters one of tennis's four major championships. A potential concern for the 25-year-old Mr. Federer as he pursues Mr. Sampras's record of 14 career Grand Slam wins is that many top players stopped winning majors at a very young age.

He's also keeping pace with Mr. Sampras. After 30 slams, Mr. Sampras had eight wins, and would win his ninth slam in his 31st major. Since Federer is 25 years old (the same age that Mr. Sampras was after 30 slams), he would seem to be a good bet to break Mr. Sampras's record. But history suggests that it's hardly a given. While 25 is young in a sport like baseball or basketball, it's middle-aged in men's tennis.

Recent history shows just what a young man's game tennis is. Of the 11 players with four or more Grand Slam singles titles who played entirely in the Open era (not including Mr. Federer), six won their last slam before their 26th birthday. That includes Jim Courier, who was finished at age 22; Mats Wilander and Bjorn Borg, who won their last slam titles at age 24; John McEnroe, who was done at 25, and Stefan Edberg and Guillermo Vilas, whose last major titles came at age 26. These players won 83 slams in total, and 61 of them -- or 73.5% -- came before their 26th birthdays.

In short, Mr. Federer's best days could well be behind him.

Federer fans can point to the example of two recent American champions, Mr. Sampras and Andre Agassi, who won majors after their 30th birthdays. However, Mr. Federer faces an obstacle that they were able to avoid -- a great young rival. Tennis is largely a game of rivalries, and by their mid-20s players invariably start losing to younger rivals. Mr. McEnroe got the best of Mr. Borg, and Ivan Lendl, in turn, figured out how to beat Mr. McEnroe. Messrs. Sampras and Agassi took advantage of a relative power vacuum in the game around the turn of the millennium, as the flaws in feisty Lleyton Hewitt's game were quickly exposed, and the supremely talented Marat Safin suffered with injuries and a lack of focus.

Mr. Federer however, has a more-than-worthy foe in 20-year-old Rafael Nadal, despite his loss in the quarterfinals of the Australian Open to Fernando González of Chile. Mr. Nadal has won back-to-back French Opens, beating Mr. Federer in Paris en route both times. And he has shown a versatility in his game -- he gave Mr. Federer a serious scare in last year's Wimbledon finals -- that's reminiscent of Mr. Borg. Plus, he owns a 6-3 career edge over Mr. Federer.

So if Mr. Federer wants to replace Mr. Sampras as the most prolific winner in men's tennis, he's going to have to make the most of his opportunities while he's near his peak -- and before Mr. Nadal reaches his. For all Mr. Federer's greatness, he's facing another rival, Father Time, who simply won't be vanquished.

NAME SLAMS WON SLAMS ENTERED SLAM AVG. AGE AT LAST SLAM WIN
Bjorn Borg 11 27 .407 24
Roger Federer 9 30 .300 ??
Pete Sampras 14 52 .269 31
Mats Wilander 7 44 .159 24
John McEnroe 7 45 .156 25

Saturday, January 27, 2007

Hollywood, the Sequel: Less Shabby, More Chic

By JENNIFER STEINHAUER
LOS ANGELES, Jan. 25 — For decades, tourists deposited themselves at one of the most famous intersections in America — Hollywood and Vine — and looked around in puzzlement, wondering what exactly they were supposed to be seeing.

The surrounding Hollywood neighborhood had fallen into such miserable disrepair that its main consumers were people seeking drugs or tattoos. Many entertainment companies were long gone. Crime was rampant, incomes were depressed, and people who labored in the industry that gave the neighborhood its fame were nowhere to be found.

But in a few weeks, work will begin on a luxury hotel and a collection of $1 million condominiums at Hollywood Boulevard and Vine Street, joining a skyline of condos and trendy new hamburger and sushi outposts rising among the mid-20th-century architecture.

That Los Angeles neighborhood, which had been promised a comeback for a good 40 years, seems to have finally achieved it, a cross-continent bookend to the transformation of Times Square in New York, with one key difference: Los Angeles residents, not just tourists, have found reasons to go there and live there.

“Hollywood is a testament to people’s desire to live in places with some sense of history and a sense of place,” said David Malmuth, a developer who brought the Kodak Theater, home to the Academy Awards, to Hollywood and also oversaw the renovation of the New Amsterdam Theater in Times Square.

In the last several years alone, more than $2 billion has been spent on projects in the neighborhood, including mixed-use retail and apartment complexes and new schools and museums. Many urban planning experts see something other than a confluence of low interest rates, a tight housing market and developers with a gleam in their eyes.

The Hollywood renaissance represents a potential future of much more of Los Angeles, a sprawling, horizontal city where vertical, dense and at least somewhat walkable neighborhoods with public transportation are increasingly in vogue.

“It is a comeback that shows there is some demand for a more urban way of life,” said Anastasia Loukaitou-Sideris, chairwoman of the Department of Urban Planning at the University of California, Los Angeles. “It is a comeback that is based not only on entertainment and commercial spaces, but mixed use and housing, at the same time the city is building its rail service.”

Among the many celebrated neighborhoods of Los Angeles, the 25 square miles of Hollywood have long stood out.

Outside of the Walk of Fame, the circular Capitol Records building and other historically sumptuous landmarks, the neighborhood is a richly diverse community of 222,694 people — from the wealthy residents peering out at the world from the hills above Hollywood proper, to the middle- and lower-income inhabitants of the streets below.

Like a great old house, the bones of Hollywood remained mostly untouched in its down years by large-scale development and the more unfortunate inclinations of contemporary urban planners. Yet years of disinvestment in the area, led by the fleeing of the movie studios, took its toll.

“It just needed a huge surge of capital investment to bring those buildings back,” said Christi Van Cleve, a partner at Roschen Van Cleve Architects, which has restored several buildings in the neighborhood.

Proponents of the new Hollywood have a data point they love to trot out: in the 1980s, the average stay on Hollywood Boulevard was a depressing 28 minutes, or about the time it can take to find a parking spot in the thriving nearby city of West Hollywood. People slept in the streets, and a drug trade prospered among boarded up historic sites.

By the early 1990s, three major projects proposed for the area had fallen apart. Subway construction was just beginning, leaving a sinkhole in the street and traffic nightmares all around. The Los Angeles riots and an economic recession had done little to brighten the hopes of Hollywood, and private equity wanted no part of it.

Then, in 1993, “Jackie Goldberg came along,” said Leron Gubler, president of the Hollywood Chamber of Commerce, referring to the Los Angeles city councilwoman representing Hollywood at the time who went on to become a state legislator. “She said, ‘Nothing is going to happen here until we address some of the basic problems,’ ” Mr. Gubler said.

The Community Redevelopment Agency, a city-sponsored revitalization effort, had begun to pay for street improvements, fixing up facades on buildings. Next came a police foot patrol paid for largely by the transit authority.

In 1995, Ms. Goldberg and the chamber staff decided to create a business improvement district along six blocks on Hollywood Boulevard. The next year, the district was established with $600,000 raised through business owners, who had their trepidations. They had heard the “Hollywood is back” storyline before.

“It was a challenge,” said Mr. Gubler, who at one point nearly stalked the owner of the Hollywood Roosevelt Hotel to get the last signature on a petition needed to get it all done. The hotel — founded in 1927 by a syndicate of Hollywood stars like Mary Pickford and Douglas Fairbanks, and home to the first Academy Awards — had as much at stake as any luminary.

By 1997, thanks to armed guards, crime in the area had dropped over 50 percent. “That is when we began to see the light at the end of the tunnel,” Mr. Gubler said.

At the same time, Mr. Malmuth, the developer, took an interest in Hollywood. He and others focused on the corner of Hollywood and Highland, a major intersection ripe for commercial development. Mr. Malmuth joined a development firm that committed to a mixed-use project that would become the home of the Academy Awards ceremony.

The Academy of Motion Picture Arts and Sciences, which had been sniffing around for new options for the Oscars, embraced the idea of a live theater surrounded by retailers and other tenants.

“When I took this into the board of governors, I thought it was going to be a hard sell,” said Bruce Davis, the executive director of the academy. “At that time, Hollywood definitely had a seedy reputation.”

The Hollywood and Highland project, first proposed at a cost of $150 million in 1998, came to fruition in 2001 at a cost closer to $600 million. Slowly, a steady stream of interest among other commercial developers followed, and nightlife and restaurants — the dual forces of urban renewal — came too, as did the final piece, new housing.

Now cruising east on Hollywood Boulevard toward a sea of glittering lights, the sleazy motels and tattoo parlors begin to give way to Starbucks and a Virgin Megastore, and the hopelessly chic Geisha House, a giant emporium of oyster shooters and sashimi “igloo style,” and the sort of people who spend a good chunk of their week in Pilates classes.

In a nod to the corner’s glamorous past, there will be an 11-story W Hotel at Hollywood and Vine. It was there that the famous Brown Derby Restaurant opened in 1929, and for years remained the watering hole for studio executives and “the talent” streaming out of nearby film studios — more Spago than Spago today.

The restaurant fell to seed like much the neighborhood in the 1970s, and closed in 1985. In a depressing coda, most of the building burned in 1987, and it was demolished in 1994. The new project at the intersection, expected to open in 2009, will include the 300-room W Hotel and a 14-story luxury condominium tower. Across the street, a converted office building has sold out its luxury condos, including one to Charlize Theron, said Eric Garcetti, the Los Angeles City Council speaker whose district includes Hollywood.

“People are seeing stars here again,” said Mr. Garcetti, who helped pass an ordinance to increase housing in the area. Developers creating apartment and condo complexes with city money are required to set aside 20 percent of the units for low-income residents, and a few sites offer more, like one along two blocks at Hollywood and Western, in colorful block buildings that look like a Mondrian painting.

But displacement of the residents who stood by Hollywood at its worst — the seamy underbelly of neighborhood renewal — is no doubt happening.

“The more they put up big flashy apartments, the more difficult it is to make ends meet,” said Tita Stallings, who has lived in Hollywood for 20 years. “As a low-income single parent, it scares the hell out of me.”

Larry Gross, the executive director of the Coalition for Economic Survival, a tenants’ rights organization, estimates that at least 1,000 units of low-income housing have been lost to development over the last five years.

Mr. Garcetti said he has struggled against this tide, requiring developers, for instance, to offer jobs to local residents and pay higher wages, and pushing for more affordable housing. “We don’t want the people who laid the groundwork here to get pushed out,” he said.

The Gap is in Hollywood now, which may just about say it all. And the subway is now open for business, ferrying people in and out of the area and setting the foundation of what may become a new Los Angeles, with fewer cars and more urban living.

Wednesday, January 24, 2007

Remote Control

By MARCEL GRANIER
January 24, 2007; Page A12

CARACAS -- The president of the Bolivarian Republic of Venezuela, Hugo Chávez, has verbally announced his decision to shut down Radio Caracas Television (RCTV) -- our TV station, the oldest in Venezuela as well as the one with the largest audience.

So continues a long series of attacks against journalists, employees, management and shareholders of many independent media companies. The aim of all this is to limit the citizens' right to seek information and entertainment in the media of their choice, to impede public access to those media where they might express or encounter criticism of the government or their proposals for reform, to stifle the pluralism of opinion in news and talk programs, and to cut off the free flow of information and debate in Venezuela. Instead, the Chávez government seeks to install a system that it has described, without apparent irony, as the "communicational and informative hegemony of the state."

On June 14, 2006, President Chávez -- dressed in military fatigues -- gave a speech on the occasion of the delivery of a batch of Kalashnikov AK-103s to an army battalion. He brandished a weapon, then pointed it at a cameraman and said: "With this rifle, which has a range of 1,000 meters, I could take out that wee red light on your camera." Moments later, he declared: "We have to review the licenses of the TV companies."

In the weeks that followed the incident, various government officials repeated the same threat and started to monitor the editorial positions of the media. "There have been qualitative changes in programming, in news selection, and in the editorial line" of some media, an official observed; "[but] there are other cases in which we have not seen this change, this rectification . . ." He reminded us all that the government "has the ability not to renew a [media] license."

On Nov. 3, 2006, a month before the Venezuelan presidential elections, President Chávez repeated his threat: "I'm reminding certain media, above all in television, that they mustn't be surprised if I say, 'There are no more licenses for certain TV channels.' . . . I'm the head of state."

On Dec. 28, 2006, President Chávez, again in military uniform, declared that the broadcasting license for RCTV would not be renewed: "The order has already been drafted, so they should start shutting down their studios." He provided detail: "the license ends in March"; but two weeks later, in the National Assembly, he contradicted himself, saying that our license would end in May. At that same time, he launched a campaign of attack ads in all state-run media, paid for with public funds, aimed at discrediting our station in the eyes of the country.

On Jan. 13, in his annual address to the National Assembly, he changed his tune again and said: "The transmission signal belongs to the Venezuelan people and will be nationalized for all Venezuelans." He added: "RCTV has only a few days left . . . they can scream, stomp their feet, do whatever they want, but the license is finished. They can say whatever they want, I don't care, it's over."

These verbal threats constitute, de facto, a public decision to silence RCTV. But RCTV has never been informed legally or formally of the measures that are to be taken against it; nor have we ever been told what exactly are the accusations against us, which makes it difficult for us to defend ourselves. President Chávez has violated the presumption of innocence and has denied us due process.

The actions against RCTV of President Chávez and his subordinates are in violation of the Venezuelan constitution, the American Convention on Human Rights, and the Inter-American Democratic Charter. They are a clear example of abuse of power, and violate the right to work of all those in the media industry, not to mention a violation of the freedom of thought and expression of millions of citizens who seek information and ideas of their own free choice.

We are faced, in effect, with an aggressive campaign to extinguish all thought that differs from that which is officially dubbed "revolutionary."

In fact, President Chávez's threat to shut down RCTV has even led Jose Miguel Insulza, secretary general of the Organization of American States, to express his dismay publicly: "The shut-down of a large media company is a very rare occurrence in the history of our continent, and has no precedent in the last decades of democracy."

Organizations such as Human Rights Watch and the Committee to Protect Journalists, among others, have also raised the alarm. But the reaction of Hugo Chávez has been typically crude. It's the way he reacts whenever faced with someone who has the temerity to disagree with him. He says, and has said repeatedly, that there's nothing to discuss. "RCTV has only a few days left. They can scream, stomp their feet, do whatever they want. But it's all over."

Mr. Granier is chairman of Radio Caracas Television. (This piece was translated from the original Spanish by Tunku Varadarajan.)

Tuesday, January 23, 2007

'Energy Independence'

By DANIEL YERGIN
January 23, 2007; Page A19
A cry is being heard across the nation, and loudly so in Washington. It is the call for "energy independence," and it will be at the center of the national energy debate over the next several months, providing the rationale for new policies and expansion of existing ones. Indeed, one might even anticipate a "declaration of energy independence" this July 4.


But what does "energy independence" mean for a $13 trillion economy that uses the equivalent of 50 million barrels of oil every day? Is it realistic and achievable? Or is it rhetorical overreach that will lead, as in the past, to disappointment and cynicism, the kind that drives the cycles of inconsistency in energy policy and leaves the U.S. no less vulnerable? The latter is more likely -- at least without a realistic appraisal of the U.S. position and the country's possibilities. But "energy independence" can provide a constructive framework for policy if it is properly thought through and the realities are recognized.

* * *

With geopolitical turmoil, volatile prices and continuing reminders of the international political power of oil, the concept of energy independence is compelling and deeply appealing. In fact, it has been appealing for quite some time. The idea was introduced by Richard Nixon in November 1973, three weeks after the Arab oil embargo, when he introduced "Project Independence" and pledged that the U.S. would, within seven years, "meet our own energy needs without depending on any foreign energy source." It was a bold assertion but one that puzzled his own advisers. "I cut the reference to 'independence' three times from the drafts, but it kept being put back," recalled Richard Fairbanks, a drafter of the speech. "Finally, I called over, and was told that it came from the Old Man himself." Nixon knew that energy independence was something that Americans would crave after the 1973 oil shock: He deliberately modeled his Project Independence on John F. Kennedy's Apollo goal of getting a man on the moon within a decade.

Back then, the goal may have seemed only somewhat unlikely. After all, when Nixon began his political career after World War II, the country already had a long history of energy independence -- and then some. For it had actually been the world's No. 1 oil exporter; indeed, out of seven billion barrels of oil used by the Allies in World War II, six billion were produced in the U.S. By the late 1940s, the U.S. had become a net importer of oil, although the real surge in imports did not begin until the 1970s.

It proved much easier to get a man on the moon than to make a nation energy independent. In the three and a half decades since Nixon, the U.S. has gone from importing a third of its oil to importing 60%, and that share is set to continue rising. The country is on a similar path for natural gas (which is about 25% of our total energy usage). North American supply has flattened out. Yet large amounts of new natural-gas-fired electric power generation have been added over the last decade, which means that demand will increase. Natural gas is also used in the making of ethanol, adding to the demand growth. This means growing imports of liquefied natural gas -- LNG -- rising from 3% of our current demand to more than 25% by 2020.

All of which suggests that thought needs to be given both to what energy independence means and what can be achieved. For, right now, the U.S. is moving at some speed in the opposite direction, toward greater integration into the global energy markets.

How dependent is the U.S.? If we look at total energy -- including coal, nuclear and a small but growing share from renewables -- the country is over 70% self-sufficient. Oil -- refined into liquid fuels for transportation -- is where most of the current dependence comes from. The risks do not owe to direct imports from the Middle East, contrary to the widespread belief. Some 81% of oil imports do not come from that region. Thus, only 19% of imports -- and 12% of total petroleum consumption -- originates in the Middle East

Our largest source of oil imports is Canada. It's also the source of most of our current natural gas imports, via pipelines. One can hardly say that either Canada or energy imports from Canada constitute a major threat to national security. The energy trade is part of a normal trading relationship with the country with which we're conjoined economically and which just happens to be our biggest trading partner. Our second largest source is Mexico, with which we are also in a dense relationship. Mexico depends upon oil for about a third of total government revenues.

The picture becomes more complex when one turns to our third largest source of oil imports, Venezuela. The once much-discussed "hemispheric energy solidarity" loses much of its resonance when balanced against the "21stcentury socialism" of Venezuela's Hugo Chávez. After all, President Chávez is currently nationalizing the private sector, has on occasion threatened to embargo oil shipments to the U.S., and is putting much effort into fashioning an anti-U.S. alliance, the latest manifestation being the visit of Iranian President Ahmadinejad to Caracas. These are not the actions one normally associates with a good friend or a reliable trading partner.

Yet the source of imports is significant only up to a point. Energy security is a global issue. Although oil around the world varies greatly in terms of physical qualities and transportation costs, there is only one world oil market. So disruptions and loss of supply in one place radiate throughout the global market -- and global politics -- affecting consumers everywhere. Even if the U.S. did not import a drop of oil, it would still be vulnerable to turmoil involving oil outside its borders.

What are the prospects for "energy independence" in the way that Richard Nixon defined it 34 years ago -- that is, 1930s-style "autarky" and total self-sufficiency? Based on where we are today, very small, at least for a couple of decades. In terms of vehicles, as pointed out in our new study on "Gasoline and the American People," only about 8% of the auto fleet turns over every year. So the lead times are long for more efficient vehicles to enter the fleet. Ethanol, derived from corn, is on track to grow to about 10% of our total gasoline pool in a few years. This is certainly not inconsequential; it represents diversification and is equivalent to creating a new Indonesia-level oil-producing country in America's Midwest. But signs are already evident of an upper bound on corn-based ethanol, as the fuel-versus-food trade-off pushes up corn prices, setting off vocal protests from livestock growers and dairy farmers and, in due course, from those who buy breakfast cereals and soft drinks made with high fructose corn syrup.

What about technological advances that provide new answers? There is a "great bubbling" all along the innovation frontier of energy, ranging from conventional energy and efficiency to, especially, renewables, alternatives and "clean tech." Activity this wide-ranging has never been witnessed before. The impact could well be considerable, or even transformative. One would be very hard-pressed today, however, to say when and what form this impact will take.

In the end, if energy independence is presented as self-sufficiency, it will likely fall flat. And, as prices run through their cycles, disappointment will undermine the longer-term commitments that are required for a sound energy future. Today, quite simply, cutting ourselves off from global energy markets is not realistic.

But, if the goal of energy independence is understood differently, to mean energy security -- resilience, robustness, reduced vulnerability -- then it is much more useful.

This kind of definition recognizes that trade, in itself, is not bad. At the same time, it emphasizes the central goal of diversification -- encouraging investment and higher levels of research and development in both alternative and conventional energy sources. It means a new push for energy conservation, higher energy efficiency, lower energy intensity -- a theme that German Chancellor Angela Merkel will make the centerpiece of her agenda as chairman of the G-8 countries later this year. It certainly requires a consistent commitment to pushing the innovation frontier in ways that, eventually, lead to economically competitive alternatives and new technologies.

And it requires an understanding that this kind of energy independence -- as measured in energy security -- actually requires interdependence with other nations, both consumers and producers of energy. Indeed, how we manage our relations with other countries and other regions is a very essential ingredient for our own energy well-being.

Mr. Yergin, chairman of Cambridge Energy Research Associates, is writing a book on energy and geopolitics.

The War on Oil

By VINOD KHOSLA
January 23, 2007; Page A18
To win the war on terror, we must first stop enabling terrorism with our oil money. Let's instead use our money to fund a war on oil. Corn ethanol has served us well and has paved the way for our future energy security. It has shown America that we do have alternatives to oil. But corn ethanol can only supply about 10% of our gasoline needs.

We need cellulosic biofuels to win the war on oil. What the best R&D will achieve is a matter of judgment, but my research has convinced me that the benchmark $1.25 per gallon or cheaper cellulosic fuels are less than three years away (though the question of putting plants in place and getting Wall Street to finance debt for such facilities still looms large). I am so convinced this is real that I have invested in a number of companies in this area. We have seen proposals to make ethanol from corn stalks, switchgrass and other grasses, woodchips, waste carbon monoxide from steel mills, municipal sewage, orange peels and other creative ideas from entrepreneurs. We must empower these entrepreneurs, and signal to them that we are serious about winning the war on oil. Some of the optimists in the startup world will surely be wrong, but will dozens of efforts all fail? Could so many companies and investors, each with a different source of technology, all be wrong?


We must encourage research on biomass feedstocks, tomorrow's "energy crops." Switch grass or miscanthus grass are economic for farmers at the yields of six tons per acre today, but we need even higher yields and "grass cocktails" to avoid the problems of monoculture agriculture. We need significantly more research in agronomy practices focused on energy crops. Miscanthus already yields 15 tons per acre in a wide variety of regions, including the U.K., and in Illinois test plantings.

From naysayers we've seen the same kind of "historical extrapolation" thinking in personal computers, in biotech, in telecom, in media and the Internet before. The experts all claimed about 10 years ago that the Internet would never replace traditional telecommunications. Today wireless and Internet telephony are pervasive, long distance calls are virtually free (unthinkable in 1995) and most of what is left of AT&T is a brand. Ten years from now, our scientists and technologists, powered by the entrepreneurial energy of the Silicon Valley mindset, will have transformed the energy world. It will look as different as today's telecom world is different from 1995. We have found scientists working on energy breakthroughs at Dartmouth (Mascoma), in pipe-fitting shops in Denver (Kergy), using platforms developed for malaria drugs in Berkeley (Amyris), in other university labs (Gevo and LS9), in India (Praj), in New Zealand and in Brazil. The conventional wisdom says that we will have to stay dependent on oil. I ask all the experts who pontificate about this to look at the facts, and at the latest developments in our labs, and imagine the future instead of extrapolating from the old energy world using conventional platitudes.

President Bush must set a very aggressive target for biofuels with an enhanced Renewable Fuel Standard (RFS). My analysis shows 39 billion gallons of biofuels production is possible in the U.S., at reasonable cost, by 2017 on 19 million acres; and 139 billion gallons by 2030 on 49 million acres. Soon we will replace all 150 billion gallons of gasoline that we use on a very small fraction of our agricultural lands while improving the environmental quality of our agriculture (through corn/soy and biomass crop rotation schemes) and improve our rural economy. Consumers can be protected by the RFS if prices get too high by including a price "relief valve" that will also protect livestock producers (who depend on reasonable corn prices).

Such a goal will ensure an attractive market for any company that meets its cost target for biofuels. If all the entrepreneurs fail, the relief valve will protect consumers and related agricultural markets. More importantly, Americans, both Democrats and Republicans, care about energy security. Many of the presidential candidates for 2008 will also support such policies.

A political consensus is possible here. President Bush will have a legacy that the world will remember. His 2006 State of the Union was pivotal in turning attention to cellulosic ethanol. His 2007 address can be the pivot on which the world's oil economy turns rapidly to a renewable, sustainable and cheaper transportation fuel future. Consumers will pay less, farmers will be better off, the world will be less dangerously dependent on the Mideast and we will take a giant step in greenhouse gas reductions. Any improvements on efficiency will make the war on oil easier. Maybe the Mideast, being less critical to the world economy, will be less geopolitically stressed and can return to normal life. We will have more energy security and enhanced energy independence -- and will leave a better world for our children. There is little downside to this.

Mr. Khosla, co-founder of Sun Microsystems and a former partner of Kleiner, Perkins, Caufield & Byers, is a partner of Khosla Ventures.

Always sunny margaritas
Our favorite cocktail winterizes famously, with guavas, grapefruits, blood oranges -- even a little spicy heat.
By Jenn Garbee
Special to The Times

January 17, 2007

SADDLE up and make your way to any self-respecting watering hole these days and a classic margarita — fresh lime juice, pure agave tequila and orange liqueur — is only a few shakes away. But there's something about sipping this sweet-tart icon of summer on a chilly winter afternoon that's a bit unsettling, like slurping eggnog on the Fourth of July.

All hail the winter margarita, a new family of cocktails that capitalizes on the many tequila-friendly fruits of the season such as grapefruit, blood oranges, guavas, even pomegranates.

"Winter margaritas should be warmer, with more complex layers of flavor than their summer counterparts," says Tim Staehling, lead bartender at the Hungry Cat. "Slightly bitter citrus fruits like grapefruit work well, but so do sweeter winter fruits, like persimmons, as long as you balance them so they're not too tart or sweet."

Finding that sour-sweet equilibrium requires a bit of tinkering. Even with the classic margarita combination, getting it right can be tricky. The key is to add sufficient tanginess to counter the sharpness of the tequila and to keep the sweetness, usually from a liqueur, subtle.

At Border Grill, classic margaritas get a splash of lemon juice to temper the acidity of stateside limes and open up their flavor.

"Mexican limes tend to be less astringent, a little sweeter, than the limes we find here, so we add lemon juice to approximate their flavor," says Mary Sue Milliken, co-owner of Border Grill in Santa Monica and Las Vegas. "It really brightens up the lime juice and gets the sweet-sour thing going that's key to a good margarita."

The zesty lemon-lime combo also perks up softer, sweeter winter citrus fruits, such as the just-in blood oranges featured in Border Grill's blood orange and jalapeño margarita.

To make a similar version at home, infuse tequila with blood oranges and jalapeño for four to six hours; remove chile, then allow the blood oranges to infuse overnight. (The restaurant infuses theirs for more than a week, but the heat steeps into the tequila more quickly when making a smaller batch.)

*

Sweet beats the heat

STRAIN the now-spicy tequila and shake it up with Grand Marnier and blood orange, lemon and lime juices. Serve this fiery winter margarita in a sugar-rimmed glass (run a wedge of lime around rim and dip the glass in sugar), icy cold and straight up. The sugar cuts the heat just enough for the sweet, tangy blood oranges to peek through.

More assertive winter citrus such as grapefruits need less acid than their sweeter orange cousins to stand up to tequila. Taste first, adding lime to bring out the bright citrus flavor without masking the tequila. Tart juice squeezed from ruby red grapefruits benefits from a thimbleful of lime juice; sweeter oroblancos and melogolds need a more generous dose.

To make a pretty weekend brunch refresher, combine the pulp and juice from about three of those ruby reds with triple sec (orange liqueur), shake over ice and serve on the rocks in a salt-rimmed glass. It's an exemplary study in sweet and sour, perfect with huevos rancheros.



When you use tropical fruits in a winter margarita, you may want to add a touch of sweetness without a citrusy edge, so pair them with full-flavored berry liqueurs instead of orange liqueur. Try passion fruit with crème de cassis, guava nectar with raspberry liqueur.

A shot of jammy Chambord brings out the strawberry scent of guava — and there's still a touch of lime juice to keep this margarita from being cloying. It's a seasonal cocktail contradiction, cozy and refreshing at the same time, garnished with a fresh, fragrant guava slice dangling from the sugared rim.

If you're going to make a fresh, peak-of-season fruit margarita, it's worth seeking out the pure agave tequilas. For the best flavor, look for tequilas made from 100% blue agave. Less expensive blends (mixtos, labeled simply "tequila") are made from up to 49% sugarcane and tend to be harsh and one-dimensional.

Blue agave tequila comes in several styles. Young, unaged platas (also known as blancos) have a bright, crisp flavor that cuts through the acidity of tart juices.

"Blancos have bite, so they're not meant for sipping," says Ricardo Paripa, lead bartender of Isla Mexican Kitchen and Tequila Bar in Las Vegas. "But in mixed drinks like citrus margaritas, they're bright and sharp, just what you want."

Full-flavored winter fruits pair best with more complex reposados (oak-aged between two and 12 months).

According to Staehling, "Reposados are mellower, a little smokier than platas, so they work well with rich winter fruits."

Earlier this season at the Hungry Cat, Staehling paired an earthy reposado with lime juice and puréed persimmons that were so sweet a liqueur wasn't necessary. But with persimmon season over so quickly, Staehling is back in the kitchen, cooking up pineapple-scented quince in search of the next reposado-worthy winter margarita.

*

The finishing touches

AND what about the great salt debate? As with the classic margarita, it's a matter of choice. Depending on the balance of sweet and sour in a cocktail, a mixologist might recommend a salt- or sugar-rimmed glass.

When you're experimenting, make that part of the equation. Kim Haasarud, cocktail consultant and author of the book "101 Margaritas," suggests a straightforward taste test: "When in doubt, salt or sugar just half the rim — that way you can decide as you sip."

If the idea of a fruity, seductive winter margarita sounds like too much of an indulgence during the spa-focused early months of the new year, Milliken's favorite home version might fit within those resolutions.

"If you're a little odd, like we are at my house, put some celery in the juicer," Milliken recommends. "Add tequila, triple sec, a pinch of sugar, dip the rim in celery salt — a Celer-ita! It's really, really good, I promise."

And besides, "Celery margaritas are diet food, right?"

*

food@latimes.com

**

Blood orange jalapeño margarita

Total time: 10 minutes, plus at least 12 hours infusing time

Servings: 4

Note: Adapted from Border Grill

Infused tequila

1 to 1 1/2 pounds blood oranges, thinly sliced

1 jalapeño, stemmed and sliced in half lengthwise

1 liter Herradura Silver

tequila

1. Place the oranges and jalapeño in a glass jar or container. Pour in the tequila (save the tequila bottle). Seal and store in a cool, dark place for 4 to 6 hours, then remove the jalapeño. (The jalapeño will infuse the tequila fairly quickly.) Let the tequila sit overnight and up to several days with just the blood oranges.

2. Strain the tequila through cheesecloth or a fine sieve and pour it back into the reserved tequila bottle. Seal and store in the refrigerator or freezer for up to 3 months.

Candied jalapeños (optional)

2 jalapeños (green and/or red)

1/2 cup sugar

Thinly slice the jalapeños crosswise. In a small sauce pan, combine 1 cup of water with the sugar and bring to a boil. Add the jalapeños, reduce the heat, and simmer for 5 minutes. Remove from the heat. With a spatula, gently remove the jalapeños, laying them flat on parchment paper to dry. Store in a sealed container for up to one week.

Margaritas

1 cup blood orange-jalapeño infused tequila

1/2 cup Grand Marnier

1/2 cup freshly squeezed lemon juice

1 tablespoon freshly squeezed lime juice

1 tablespoon freshly squeezed orange juice

2 tablespoons superfine sugar, or to taste

4 slices blood orange, for

garnish

4 slices candied jalapeños, for garnish (optional)

1. Run a lime wedge halfway around the rim of four margarita glasses and dip into sugar. Set aside.

2. Combine the infused tequila, Grand Marnier, lemon juice, lime juice, orange juice and superfine sugar. Pour half the mixture into a cocktail shaker filled with ice. Shake until chilled, about 15 seconds. Strain into two of the sugar-rimmed glasses. Repeat to make two more cocktails. Garnish with a slice of blood orange and a candied jalapeño, if desired

Each serving: 263 calories; 0 protein; 22 grams carbohydrates; 0 fiber; 0 fat; 0 cholesterol; 3 mg. sodium.

**

Guava margarita

Total time: 10 minutes

Servings: 4

Note: Ceres guava nectar is available at select Whole Foods and Ralphs stores.

Wedge of lime

2 teaspoons sugar

12 ounces guava nectar

2 ounces lime juice

2 ounces Chambord liqueur

5 ounces tequila (blanco or silver)

1 fresh guava, quartered

1. Run a lime wedge around the rim of four glasses and dip into sugar. Set aside.

2. Combine 6 ounces guava nectar, 1 ounce lime juice, 1 ounce Chambord and 2 1/2 ounces tequila in a cocktail shaker. Shake over ice until chilled. Strain into two ice-filled, sugar-rimmed glasses.

3. Garnish with a guava slice. Repeat to make two more cocktails.

Each serving: 199 calories; 1 gram protein; 25 grams carbohydrates; 2 grams fiber; 0 fat; 0 cholesterol; 4 mg. sodium.

**

Ruby red grapefruit margarita

Total time: 10 minutes

Servings: 4

Wedge of lime

2 teaspoons coarse

margarita salt

14 ounces ruby red grapefruit juice, with pulp (about 3

medium grapefruits)

1 ounce lime juice

5 ounces reposado tequila

2 ounces triple sec

4 slices grapefruit or twists

1. Run a lime wedge halfway around the rims of four margarita glasses and dip into salt. Set aside.

2. Combine 7 ounces grapefruit juice, one-half ounce lime juice, 2 1/2 ounces tequila and 1 ounce triple sec in a cocktail shaker. Shake over ice until chilled. Strain into two ice-filled, salt-rimmed margarita glasses.

3. Garnish with a twist or slice of grapefruit. Repeat to make two more cocktails.

Each serving: 174 calories; 1 gram protein; 17 grams carbohydrates; 0 fiber; 0 fat; 0 cholesterol; 2 1/2 mg. sodium.

Viejo Trolo


Despues


Antes


Saturday, January 20, 2007

Thursday, January 18, 2007

Will Al Gore Melt?

By FLEMMING ROSE and BJORN LOMBORG
January 18, 2007 - WSJ

Al Gore is traveling around the world telling us how we must fundamentally change our civilization due to the threat of global warming. Today he is in Denmark to disseminate this message. But if we are to embark on the costliest political project ever, maybe we should make sure it rests on solid ground. It should be based on the best facts, not just the convenient ones. This was the background for the biggest Danish newspaper, Jyllands-Posten, to set up an investigative interview with Mr. Gore. And for this, the paper thought it would be obvious to team up with Bjorn Lomborg, author of "The Skeptical Environmentalist," who has provided one of the clearest counterpoints to Mr. Gore's tune.

The interview had been scheduled for months. Mr. Gore's agent yesterday thought Gore-meets-Lomborg would be great. Yet an hour later, he came back to tell us that Bjorn Lomborg should be excluded from the interview because he's been very critical of Mr. Gore's message about global warming and has questioned Mr. Gore's evenhandedness. According to the agent, Mr. Gore only wanted to have questions about his book and documentary, and only asked by a reporter. These conditions were immediately accepted by Jyllands-Posten. Yet an hour later we received an email from the agent saying that the interview was now cancelled. What happened?


One can only speculate. But if we are to follow Mr. Gore's suggestions of radically changing our way of life, the costs are not trivial. If we slowly change our greenhouse gas emissions over the coming century, the U.N. actually estimates that we will live in a warmer but immensely richer world. However, the U.N. Climate Panel suggests that if we follow Al Gore's path down toward an environmentally obsessed society, it will have big consequences for the world, not least its poor. In the year 2100, Mr. Gore will have left the average person 30% poorer, and thus less able to handle many of the problems we will face, climate change or no climate change.

Clearly we need to ask hard questions. Is Mr. Gore's world a worthwhile sacrifice? But it seems that critical questions are out of the question. It would have been great to ask him why he only talks about a sea-level rise of 20 feet. In his movie he shows scary sequences of 20-feet flooding Florida, San Francisco, New York, Holland, Calcutta, Beijing and Shanghai. But were realistic levels not dramatic enough? The U.N. climate panel expects only a foot of sea-level rise over this century. Moreover, sea levels actually climbed that much over the past 150 years. Does Mr. Gore find it balanced to exaggerate the best scientific knowledge available by a factor of 20?

Mr. Gore says that global warming will increase malaria and highlights Nairobi as his key case. According to him, Nairobi was founded right where it was too cold for malaria to occur. However, with global warming advancing, he tells us that malaria is now appearing in the city. Yet this is quite contrary to the World Health Organization's finding. Today Nairobi is considered free of malaria, but in the 1920s and '30s, when temperatures were lower than today, malaria epidemics occurred regularly. Mr. Gore's is a convenient story, but isn't it against the facts?

He considers Antarctica the canary in the mine, but again doesn't tell the full story. He presents pictures from the 2% of Antarctica that is dramatically warming and ignores the 98% that has largely cooled over the past 35 years. The U.N. panel estimates that Antarctica will actually increase its snow mass this century. Similarly, Mr. Gore points to shrinking sea ice in the Northern Hemisphere, but don't mention that sea ice in the Southern Hemisphere is increasing. Shouldn't we hear those facts? Mr. Gore talks about how the higher temperatures of global warming kill people. He specifically mentions how the European heat wave of 2003 killed 35,000. But he entirely leaves out how global warming also means less cold and saves lives. Moreover, the avoided cold deaths far outweigh the number of heat deaths. For the U.K. it is estimated that 2,000 more will die from global warming. But at the same time 20,000 fewer will die of cold. Why does Mr. Gore tell only one side of the story?

Al Gore is on a mission. If he has his way, we could end up choosing a future, based on dubious claims, that could cost us, according to a U.N. estimate, $553 trillion over this century. Getting answers to hard questions is not an unreasonable expectation before we take his project seriously. It is crucial that we make the right decisions posed by the challenge of global warming. These are best achieved through open debate, and we invite him to take the time to answer our questions: We are ready to interview you any time, Mr. Gore -- and anywhere.

Mr. Rose is culture editor of Jyllands-Posten, in Copenhagen. Mr. Lomborg is a professor at the Copenhagen Business School.

Wednesday, January 17, 2007

China: One Doctor Against The System

In China, Preventive Medicine
Pits Doctor Against System
Hospitals See Threat
To Profit, Bonuses;
Dr. Hu's House Call
By ANDREW BROWNE
January 16, 2007; Page A1

LOUDI, China -- Dr. Hu Weimin has attracted a wide following among the poor in this city by providing free advice on how to avoid high blood pressure and dispensing cheap drugs to treat the condition, one of the biggest killers in China.

His efforts have won him national recognition, and he counsels thousands of patients via the Internet. But Dr. Hu's public health message has turned him into an outcast at his hospital. Fellow physicians shun him, and administrators bar him from the wards.

Like hospitals all over China, Loudi Central earns the bulk of its income from sales of drugs and high-tech testing. Doctors who pull in the most revenue earn the biggest bonuses. That gives them an incentive to pad the bills, not slim them down. Academic studies show that 50% of all Chinese health-care spending is for drugs. In the U.S., the figure stands at about 10%. "Every prescription is a money-making opportunity," says Dr. Hu.

Dr. Hu's experiences show the contradictions that make it difficult for Chinese leaders to fix the country's broken health-care system. President Hu Jintao has made medical reform an urgent priority. But incentives within China's pay-as-you go system lead some hospitals to fight changes that almost everyone else agrees are desperately needed. That helps explain why Dr. Hu, a rare whistle-blower, has been lauded in the state-owned national media for preaching basic preventive medicine -- but has been treated as a dissident in his own hometown, beaten up by one of his bosses and banished from the hospital wards.

"As a grass-roots doctor in a local hospital, it is amazing that Dr. Hu is trying his best to educate hundreds or even thousands of patients," says Wu Yangfeng, a professor of the School of Public Health at Peking University and former head of Epidemiology and Cardiovascular Institute at Fu Wai Hospital.

China's socialist government once nursed the health of almost everybody. Then, starting in the early 1980s, it launched a privatization program that reversed course. Private spending accounted for 64% of all health-care expenditure in China in 2004, compared with 55% in the U.S. and 14% in Britain. But in China, almost all private spending is out-of-pocket: Private insurance coverage is negligible.

Exorbitant charges are putting health care beyond the reach of millions of people in a country where two-thirds of the 1.3 billion-strong population have no health insurance and must pay cash up front for treatment. If they can't come up with the often-large sums, hospitals simply refuse to treat them.

Popular outrage is growing at the inequities of a hospital system where those with money have a chance to live and those without simply "wait to die" at home. A Chinese health ministry study showed that 43% of hospitalized patients in 2003 discharged themselves against medical advice, two-thirds of them because they had run out of money.

Chinese officials openly concede the system is failing. Just this week, health minister Gao Qiang was quoted by state news agency Xinhua calling for "a hospital management system which stresses public service instead of commercial profit." His chief spokesman Mao Qunan says, "Hospital reform is the biggest problem we face. The actions of some doctors and hospitals are hard to understand." He won't comment directly on Dr. Hu's case, but expresses general sympathy with him.

The system is failing just as China faces a health challenge of immense proportions. Cancers and vascular diseases leading to strokes and heart attacks have risen enough to replace contagious diseases as the leading causes of death in China. That's partly because of more sedentary habits and growing numbers of smokers, both linked to an increasingly urbanized and Westernized lifestyle.

Growing Resentment

Resentment over health care is increasing. In November, some 2,000 people mobbed a hospital in southwest China after a boy died there. The boy was rushed in by his grandfather after swallowing pesticides, according to a report by the Hong Kong-based Information Center for Human Rights and Democracy. Doctors sent the old man away to fetch more cash, according to the report, but by the time he returned, the boy -- 3 or 4 years old -- was dead. There are conflicting accounts about what treatment the boy received. But angry crowds were convinced that doctors let him die while they waited for money. They smashed hospital windows and equipment and clashed with police. At least 10 people were injured.

Beijing health officials say they are reluctant to pump more government money into health care until they fix the system. They are trying to expand rural health insurance, introduce further caps on drug prices, and add a network of community health centers in cities -- but face enormous resistance to changes from some hospitals and the local officials who back them. The central government sees Dr. Hu's saga as a symbol of the need for the hard-to-accomplish overhaul.

Dr. Hu's problems started in 1997 in Loudi, a city of 1.2 million a short drive from the birthplace of Mao Zedong in inland Hunan province. An internist at the hospital, he asked permission to set up a clinic to offer education on high blood pressure.

Dr. Hu is driven by personal tragedy. For several decades, his father lived as an invalid following a heart attack. As a boy, he became aware of the hazards of high blood pressure after a brain hemorrhage felled his primary-school teacher.

The hospital wouldn't free up a room for his venture, but grudgingly agreed to let him use a dank space outside -- the coal shed. There, he set up a wooden desk and hung a white sheet, he says, to hide the piles of dirty coal he'd shoveled to one side. His health messages to the crowds that thronged there were simple and cost-free -- stop smoking, exercise more, avoid greasy foods, go easy on the salt. For two years, his clinic attracted constant traffic. "Then came trouble," he says.

As more people picked up tips, Dr. Hu says attitudes in the hospital turned frosty as fellow physicians noticed their own patient numbers falling, and hospital accountants saw decreased revenues. Government data shows Hunan province is a hot-spot for hypertension, brought on by the region's famously spicy cuisine laden with salt and pork fat. "I kept people out of the hospital," Dr. Hu says.

Hospital authorities and city officials declined repeated requests for interviews to respond to Dr. Hu's allegations.

Financial Incentives

A bonus system for doctors is widespread in China, as documented in a study by researchers at China's Shandong Medical University and the Harvard School of Public Health. Dr. Hu describes in detail how the financial incentives work in Loudi Central, a sparkling new facility.

Doctors who prescribe a CAT scan collect a personal bonus of 20 yuan ($2.50), he says. Inducements grow quickly with the sophistication of the treatment. The bonus for laser surgery: 500 yuan ($63). For a heart pacemaker the reward is as much as 20,000 yuan ($2,500). In addition, he says, the hospital pays departments collective bonuses based on the value of drugs their doctors prescribe. For expensive Western drugs, it's 3% of the sales price; for cheaper Chinese drugs, it's 5%.

The extra cash makes a huge difference to a hospital doctor in a small provincial city like Loudi, who typically earns less than $200 a month in salary. Bonuses can be many times basic pay.

Few countries let doctors profit so directly from their patients. China's system virtually forces the profit-making incentive upon hospitals that are still mostly owned by the government -- yet are largely self-funded.

In an effort to make treatment affordable, health authorities set low wages for doctors and impose caps on hospital charges for basic care and common drugs, which are delivered at below cost. To make up for this, hospitals and clinics are permitted to charge a 15% to 20% markup on new drugs, advanced tests and technologies. An unintended consequence: Hospitals have turned into giant pharmacies. Some 60% of their revenue comes from drug sales, according to official data.

By the time a drug arrives at a hospital pharmacy in some parts of China it could have passed through as many as three or four distributors, each taking as much as a 15% markup, says Robert Pollard, director of Synovate Healthcare China, a medical consulting firm.

Doctors massively over-prescribe drugs to increase their salaries, numerous studies show. One survey cited in a World Bank study last year showed that less than 1% of drug prescriptions at village clinics in poor areas of China were considered "reasonable" by doctors who reviewed the records.

Similar incentives are undermining China's public health system. A study in the New England Journal of Medicine found that better control of hypertension could have prevented 11% of all deaths in a representative population of men and women over 40 tracked for a decade. It chided government prevention efforts as "unacceptably low."

Dr. Hu's battles with his hospital have upended the personal life of the gentle-mannered 43-year-old, who relaxes by playing violin and practicing tai chi. Matters came to a head when he got into an argument with the deputy director of internal medicine, Chen Binhua, in 1999. According to local court records, the row turned violent: There was some pushing and shoving and then Dr. Chen lashed out with a kick that caught Dr. Hu in the groin. The blow was serious enough to put Dr. Hu in hospital -- and, he says, it rendered him impotent. As a result, Dr. Hu says, his wife abandoned him. Dr. Chen, who has retired, could not be reached.

Series of Humiliations

Over the next few years Dr. Hu had to endure a series of humiliations. The plastic sign advertising his clinic was repeatedly ripped down and smashed. In 2003, the hospital director tried to remove him from medical practice altogether and push him into a new job in the hospital union. Dr. Hu refused to go, but he was barred from working as an internist in the hospital wards, meaning he could only do outpatient work. "I was sidelined," he says.

Finally, in 2004, he resigned and with nothing more to lose took his story to the national media. Investigative pieces detailing his persecution started appearing in prominent state-run newspapers. China Central Television included Dr. Hu in a top-10 list of social campaigners in 2005. Amid all the publicity, the hospital director was removed from his post, with no reason given by the local government.

Dr. Hu withdrew his resignation after two weeks. He says what changed his mind was a petition signed by 3,000 of his patients denouncing the hospital and begging him to stay. "My patients kept me going," he says.

Since then, he has continued his campaign. On one of his recent Sunday morning rounds, he dropped in on Wu Lianhua, 77, in her windowless basement. A frail grandmother with wispy white hair who gulps oxygen from a rusty cylinder by her bed, Ms. Wu said she ran through 50,000 yuan ($6,300) in three months in another hospital. That exhausted the life savings of the retired textile factory worker and her husband. She borrowed more from relatives and friends. Then, she said, she found the by-then famous Dr. Hu.

Dr. Hu says he immediately took her off a cocktail of expensive imported drugs that he says were working against each other. A Chinese-made generic drug for hypertension plus another for anxiety recently gave her a full night's sleep for the first time in six months. His monthly bill: just 300 yuan ($38).

'A Doctor With a Conscience'

"He's a doctor with a conscience," says Ms. Wu. Her husband, Li Fuhua, marvels that Dr. Hu refuses bribes. "I offer him eggs, but he won't take them. He won't even take an apple," Mr. Li says.

These days, Dr. Hu's clinic has moved inside the hospital. The sign now above his door proclaims, in English, "Prevention and Cure Office for Blood Vessel of Heart and Brain." It's standing-room-only on weekday mornings as hypertension sufferers, many of them elderly retirees, swarm in to listen to his practical advice. "The most expensive medicine is not always the best," he lectures the crowd. "Find a drug that works for you."

Dr Hu's relations with Loudi Central remain frosty. Even though he's now part of a national project collecting data on hypertension, his hospital won't let him back into the wards. With his Web site, he manages some 7,000 patients and runs a high-blood-pressure support group with 50,000 members, though hackers often break through.

Dr. Hu isn't optimistic about prospects for change in Loudi. Local officials, he's concluded, "don't have the health of their people at heart."

France's Anti-Anti-Americans

By MATTHEW KAMINSKI
January 16, 2007- WSJ

PARIS -- The French presidential campaign started in earnest this week after the ruling center-right party tapped Nicolas Sarkozy to face off against Socialist Ségolène Royal. His nomination also brings closer the day that Charles de Gaulle will be laid to rest. Wait, you say, the man is dead and buried since 1970. True, but he's gone in body, not in spirit. The general has shaped France's view of the world and itself from the closing days of the last great war. Come May, with a new resident in the Elysée Palace, that looks bound to change.

In Sarko or Ségo, as they're widely known, France would get its first head of state born after World War II. More than a change of the generational guard looms on the horizon. Neither of the presumptive successors to Jacques Chirac sounds beholden to a Gaullist creed characterized by the prickly defense of the Fifth Republic's "grandeur" and a knee-jerk anti-Americanism. To judge by their rhetoric, the two leading candidates are willing apostates, particularly on foreign policy. The repercussions should not be minimized.
[Charles de Gaulle]

The 74-year-old Mr. Chirac is a Gaullist par excellence -- whether storming out last year when a Frenchman dared speak English at a European Union meeting or grandstanding over Iraq in 2003. "I have a simple principle in foreign affairs. I see what the Americans are doing and I do the opposite. That way, I'm sure to be right," he's told colleagues on several occasions, according to Franz-Olivier Giesbert's "La Tragédie du Président," a political obituary of Mr. Chirac published last year.

Electoral setbacks, poor health and plummeting popularity make it unlikely Mr. Chirac will dare seek a third term or be able to hand the reins to a trusted ally such as Dominique de Villepin, the neo-Napoleonic (much less Gaullist) prime minister. Mr. Sarkozy, a nemesis of both men, won their party's Sunday primary with 98% of votes.

On nearly all matters, Mr. Sarkozy sees what Chirac is doing and does the opposite -- especially on America. Mr. Sarkozy hails the Yankee "can-do spirit" and openness to newcomers. France and America, he says, have a common enemy, terrorism. In a visit to Washington last fall, he enthusiastically met with George W. Bush and lashed out against "French arrogance"; neither won him plaudits back home. One of his nicknames -- Sarko l'Américain -- isn't intended as a compliment.

His Hungarian, Greek-Jewish immigrant roots make him unusual in French politics, and partly explain his different approach. The U.S. "is a country that a part of our elites make a habit of detesting," Mr. Sarkozy writes in his manifesto/autobiography, "Témoignage" ("Testimony"), that shot up the best-seller lists here last summer. "That is particularly strange since we've never been at war with this nation, which came to help us, defend us, liberate us on two occasions in our recent history, with which we share close democratic values."

Mr. Sarkozy's book takes a dig also at American arrogance, and in his acceptance speech Sunday he praised President Chirac's opposition to "the war in Iraq, which was a mistake." But his France would pursue an "entente" with Washington, he says in "Témoignage," which comes out in an English translation this spring. In conclusion, he writes that "the world has changed a lot since General de Gaulle's era." His version of Gaullism -- and Mr. Sarkozy does after all lead the general's old camp -- would save "la France éternelle" through a rupture with the Gaullist past.

Less can be said about Ms. Royal's views; she smiles much and reveals little. But, in a series of debates before November's Socialist primary, what Ms. Royal didn't say said plenty. As the other candidates brought out the well-worn trope of France as counterweight to the evil hyperpower, Ms. Royal stayed mum. So far she refuses to play the anti-American card. Though Iraq's "a catastrophe," she says its democracy deserves support. To more guffaws from Paris elites, Ms. Royal calls for "extremely strong diplomatic action to prevent Iran from getting nuclear power, which would be very dangerous for the whole region" and rules out atomic energy for civilian use. That's as hard a line as any out there today. Ms. Royal, wrote a gushing editorialist in Le Monde, "favors a break with the soft consensus that for too many years has prevailed in French foreign policy."

For sure, she is an ingénue who flopped during a maiden trip abroad to Lebanon last month. Her party will constrain her with its anti-Americanism; on its Web site, the Socialists recently went after Mr. Sarkozy as "an American neo-Conservative with a French passport." Mr. Sarkozy, for his part, is inexperienced in foreign affairs as well as unpredictable.

But the two candidates, both in their early 50s, represent a break with the present by virtue of not sharing the ruling generation's preoccupation with the traumas of the 20th century. Gaullism and antiaméricanisme were salves for pride wounded in two world wars and by the loss of Indochina and Algeria. Though anti-Americanism dates back to the 19th century, the word itself entered the French political lexicon in the late 1940s and the dictionary only in 1968. To this day, no other nation's name gets coupled with "anti" in the French language.

Sarko is an anti-anti-American, Ségo at least agnostic, but both are also self-avowedly "pragmatic," which leaves less space for "French glory." This reflects modern reality: France simply matters less, in a larger Europe and with a rising Asia, than before. Polls also show that voters by wide margins want their leaders to "take care of them," not the world beyond, which is a big shift in the last decade.

So are the French turning -- dare one utter this word -- "pro-American"? Not exactly. Mr. Bush's approval ratings here are, at 6%, on par with Iran's Mahmoud Ahmadinejad. France's large Muslim minority is an emerging factor that might sustain old policies by a different name. That old fox Mr. Chirac may, in spite of huge odds, find a way to stop Ségo and Sarko from taking his job. A new president could change once in office.

Yet the options on offer give the imagination pause. Freed of its hatred for the U.S. and other postwar illusions, this country may be usefully constructive for a change in dealing with Iran, Russia, the Arab world, China, and so on. This France would finally bury the ghosts of its awful 20th century. And de Gaulle could at last rest in peace.

Mr. Kaminski is the editorial page editor of The Wall Street Journal Europe.

Pelosi's Tuna Surprise

January 16, 2007 - WSJ

Economists of every political stripe agree that a higher minimum wage will cost some low-skill workers their jobs. But don't believe us; just ask Democratic Speaker Nancy Pelosi.

The House last week whooped through an increase in the minimum wage to $7.25, by a vote of 315-116. But, lo, included as part of this boon to the working man was a loophole: The new, higher wage floor applied to all of these United States and its territories -- save for the Pacific outpost of American Samoa. In the immortal words of Congressman Patrick McHenry (R., N.C.), "There's something fishy going on here."

It turns out that American Samoa has a big fish and tuna canning industry, specifically operations run by StarKist and Chicken of the Sea. Both companies are headquartered in California, and StarKist's parent is located in none other than Ms. Pelosi's own San Francisco district. So faster than you can say "middle class squeeze," Democrats rediscovered the eternal economic truth that a higher minimum wage can cost jobs and granted Samoa its reprieve.

They have a good point. In 2004, according to the Department of Labor, Samoan canneries directly employed some 4,800 people, or nearly 40% of the work force. StarKist and Chicken of the Sea would have plenty of other low-wage locations to do their canning. The average hourly wage for the American Samoan canneries in 2004 was about $3.60. In contrast, the average cannery wage in Thailand was 67 cents an hour and in the Philippines 66 cents.

You don't have to go as far as American Samoa to discover other liberals who understand this -- at least when they do the hiring. In 1995, the union-financed lobby, Acorn, sued California seeking exemption from the state's then-$4.25 minimum wage. Acorn argued in its court brief that, "The more that Acorn must pay each individual outreach worker -- either because of minimum wage or overtime requirements -- the fewer outreach workers it will be able to hire." As liberal economist Joseph Stiglitz once wrote: "A higher minimum wage does not seem a particularly useful way to help the poor."

None of this insight will do American Samoa much good, however. Red-faced after her tuna surprise was discovered, Speaker Pelosi announced late last week that she was directing her cannery compadre, California's George Miller, to re-examine whether the bill also should apply to the Pacific island. Maybe the poor Samoan workers who lose their canning jobs can relocate to Thailand.

Tuesday, January 16, 2007

The Poor Get Richer

By MARY ANASTASIA O'GRADY
January 16, 2007 - WSJ

Here's bad news for those who oppose global free trade: Not only did the world-wide trend toward greater economic liberty hold steady over the past year, but the incomes of poor individuals across the globe are rising as result. The world isn't only growing richer. The gap between the per-capita income of have-not populations and that of the developed world is narrowing.

This good news for human progress is documented in the 2007 Heritage Foundation/The Wall Street Journal 2007 Index of Economic Freedom, released today. Neither another year of Islamic terrorism, nor record high oil prices, nor fear mongering on Capitol Hill about the China peril have been able to reverse a gradual global shift that reflects the basic human longing for individual liberty. While not all of mankind is participating in this advance, in those places where freedom has increased, people are becoming decidedly better off.

ECONOMIC FREEDOM

See a ranking of 157 freest economies in the world.
The average freedom score this year for the 157 countries ranked is the second highest since we began measuring economic freedom 13 years ago. It is down a fraction from last year, but each region of the globe enjoys greater economic freedom than it did a decade ago. Hong Kong, Singapore and Australia are the three freest economies in the world this year, in that order. The U.S. ranks No. 4. Among the 20 freest economies in the world, Europe holds 12 places.

This year the Index has some important changes. One is the addition of a 16-member academic advisory board to oversee methodology, one of the most critical aspects of the annual survey. That methodology also has some changes. The annual survey still grades countries on a combination of factors including property rights protection, tax rates, government intervention in the economy, and monetary, fiscal and trade policy. But this year we have renamed the "regulation" factor "business freedom" in order to reflect our emphasis on liberty. Thanks to data from the World Bank's annual "Doing Business" report, we expect this factor to better capture the varying levels of entrepreneurial freedom around the globe. We have also crafted a new category to measure "labor freedom," meaning the flexibility of labor laws. Finally, the Index scoring scale will now be 0 to 100 instead of 1 to 5, to allow a more nuanced overall measure.

As it has in past editions, the 2007 Index also looks at income levels around the globe and finds that economically free countries enjoy significantly greater prosperity than those burdened by heavy government intervention. The per capita GDP of the top quintile of countries, ranked according to economic freedom, is now almost $28,000 while the bottom quintile is less than $5,000. The associated higher GDP rates that come with economic freedom "seem to create a virtuous cycle, triggering further improvements in economic freedom. Our 13 years of Index data strongly suggest that countries that increase their levels of freedom experience faster growth rates," says the report.

* * *

This year the Index again includes important essays on world economic trends. In a piece titled "Global Inequality Fades as the Global Economy Grows," Columbia University professor of economics Xavier Sala-i-Martin destroys the myth that the income gap is widening. While it is true that some countries are being left behind, when population weights are factored into the equation, the evidence shows that "individual income inequality declined substantially during the past two decades. The main reason is that incomes of some of the world's poorest and most populated countries (most notably China and India, but also many other countries in Asia) converged rapidly with the incomes of OECD citizens." Of course both China (ranked 119) and India (104) have a long way to go toward economic freedom but both have made big gains in recent years. Mr. Sala-i-Martin finds that the inequality gap would be even narrower if not for the "dismal performance" of African countries.

A second essay is by Swedish economist Johnny Munkhammar on "The Urgent Need for Labor Freedom in Europe -- and the World." The more advanced economies in Europe restrict labor freedom at the cost of low growth and high unemployment, he argues, while "many Eastern and Middle European countries experiment successfully with freedom." Contrary to socialist views, labor freedom and improving social conditions actually go together. What he concludes could be applied to the rest of the globe in all areas of economic policy: "If the world wants to achieve both more jobs and better living standards, freedom is essential."

Ms. O'Grady is member of the Journal's editorial board. She is co-editor, with Tim Kane and Kim R. Holmes, of the 2007 Index of Economic Freedom (408 pages, $24.95), available at 1-800-975-8625.

Monday, January 15, 2007

Reach Out To Cuba's People

By MARIO LOYOLA
January 13, 2007 - WSJ

With Iranian President Mahmoud Ahmadinejad visiting Venezuela today, it might be a good time to consider another "change in course" for U.S. policy. The isolation of Cuba, a legacy of the Cold War, is pushing that country closer to America's most dangerous enemies.

In a recent open letter to President Bush, several major Cuban dissident groups called for an end to U.S. restrictions on travel and remittances to Cuba. Now joining their call is the Miami-based Cuban Consensus, a coalition of 20 pro-democracy groups including the "hard-line" Cuban-American National Foundation. The advocates for the current policy -- chiefly three intransigent Cuban-American representatives in Congress -- are increasingly alone.

If we don't lift the travel and remittance restrictions now, it is not just the Cuban people who stand to suffer. Allowing Cuba to slip further under the influence of Venezuela's newly reelected Hugo Chávez, the proud new ally of Iran, would be terrible for the U.S.

These restrictions are regulatory, which means that the president could eliminate them tomorrow. But the Helms-Burton law freezes the larger economic embargo in place until the communist regime dismantles its security apparatus and calls for free elections -- and until both Raúl and Fidel Castro are gone. With the changing of the guard in Havana, there will be opportunities for incremental reform. The new Congress must amend Helms-Burton to give the president the flexibility he will need to seize them.

Any major opening -- such as diplomatic talks or relaxation of the embargo -- should be conditioned on Cuba's release of political prisoners, economic reforms, freedom of speech and a dismantling of the neighborhood spy system that has driven Cuban society into such a heartbreaking state of paranoia. But Helms-Burton's rigid, all-or-nothing approach creates no incentive for Cuba's communists to undertake even the most minor reform.

For many supporters of the current policy, isolating Cuba has become almost an end in itself. Nothing could be more perverse. If Cuban culture is exposed to globalization, it will fuel yearning for the freedoms of modernity. If we expand diplomatic contact, we will begin to discover allies within the regime. Allowing Cuba to join the international trade and finance system (which U.S. law largely prevents) will multiply the incentives to liberalize. By isolating Cuba and driving it into the arms of Hugo Chávez, the only real beneficiaries are communist hard-liners -- and their patrons.

Cuba's communist regime has two conflicting needs -- isolation and money. Ending isolation will rebuild the bridges between Cubans and their most natural allies -- the American people. It would also likely expose Cubans to the political and commercial culture of one of the most spectacularly successful immigrant communities in the U.S. -- that of their exiled family members in Miami.

Relaxing the flow of funds from the U.S. would also turn a communist need to our advantage. The more Cuba depends financially on the U.S., the more leverage we will gain in pushing for economic and political reform. Cutting the regime off from sources of financing may have made sense after the fall of the Soviet Union, when Cuba had nowhere else to turn. But now it has Venezuela.

With Fidel Castro's removal from power and imminent demise, the key obstacle to reform within the regime has disappeared. A new generation of bureaucrats now has a chance to gain influence. Many of today's younger "communists" are less interested in the Revolution than in maintaining stability -- and much less interested in Venezuela's patronage than in normalizing relations with the U.S. For Cuba's proud armed forces, the prospect of becoming servants to Mr. Chávez is not attractive. Unfortunately, U.S. stubbornness leaves them little choice.

Cuba's increasing dependence on Mr. Chávez is dangerous for the U.S. Venezuela uses oil money to fuel a global campaign against America. Venezuelan intelligence services set up shop wherever they can in Latin America to eradicate government officials educated in the U.S. or suspected of pro-American sympathies. Bolivia, Ecuador and Nicaragua are falling firmly into Venezuela's orbit. And throughout the Non-Aligned Movement, Mr. Chávez trades oil money for diplomatic support against the U.S. in a new kind of Cold War. Worse, after his recent election victory, Mr. Chávez seems to be claiming a mandate for an even more stridently Castroist and anti-American position -- all of which will influence the direction of the Cuban regime.

Looming on the horizon is an even greater threat. Iran's intelligence services -- perhaps the most prolific and sophisticated terrorist organization in the world -- use diplomatic channels to build their network. And there are clear indications of a renewed Hezbollah effort in South America. Thus Venezuela's new alliance with Iran represents a grave danger to the whole hemisphere. Venezuela is already putting enormous pressure on Cuba to expand its ties with Iran; an Iranian foothold just 90 miles from our own shores would be a catastrophic setback in the war on terror.

Relaxing Cuba's isolation would help diminish a gathering threat to national security, and bring hope to Cubans everywhere that the long tragedy of communism and exile may finally be coming to an end.

Mr. Loyola is a Fellow at the Foundation for the Defense of Democracies.

Reach Out To Cuba's People

By MARIO LOYOLA
January 13, 2007 - WSJ

With Iranian President Mahmoud Ahmadinejad visiting Venezuela today, it might be a good time to consider another "change in course" for U.S. policy. The isolation of Cuba, a legacy of the Cold War, is pushing that country closer to America's most dangerous enemies.

In a recent open letter to President Bush, several major Cuban dissident groups called for an end to U.S. restrictions on travel and remittances to Cuba. Now joining their call is the Miami-based Cuban Consensus, a coalition of 20 pro-democracy groups including the "hard-line" Cuban-American National Foundation. The advocates for the current policy -- chiefly three intransigent Cuban-American representatives in Congress -- are increasingly alone.

If we don't lift the travel and remittance restrictions now, it is not just the Cuban people who stand to suffer. Allowing Cuba to slip further under the influence of Venezuela's newly reelected Hugo Chávez, the proud new ally of Iran, would be terrible for the U.S.

These restrictions are regulatory, which means that the president could eliminate them tomorrow. But the Helms-Burton law freezes the larger economic embargo in place until the communist regime dismantles its security apparatus and calls for free elections -- and until both Raúl and Fidel Castro are gone. With the changing of the guard in Havana, there will be opportunities for incremental reform. The new Congress must amend Helms-Burton to give the president the flexibility he will need to seize them.

Any major opening -- such as diplomatic talks or relaxation of the embargo -- should be conditioned on Cuba's release of political prisoners, economic reforms, freedom of speech and a dismantling of the neighborhood spy system that has driven Cuban society into such a heartbreaking state of paranoia. But Helms-Burton's rigid, all-or-nothing approach creates no incentive for Cuba's communists to undertake even the most minor reform.

For many supporters of the current policy, isolating Cuba has become almost an end in itself. Nothing could be more perverse. If Cuban culture is exposed to globalization, it will fuel yearning for the freedoms of modernity. If we expand diplomatic contact, we will begin to discover allies within the regime. Allowing Cuba to join the international trade and finance system (which U.S. law largely prevents) will multiply the incentives to liberalize. By isolating Cuba and driving it into the arms of Hugo Chávez, the only real beneficiaries are communist hard-liners -- and their patrons.

Cuba's communist regime has two conflicting needs -- isolation and money. Ending isolation will rebuild the bridges between Cubans and their most natural allies -- the American people. It would also likely expose Cubans to the political and commercial culture of one of the most spectacularly successful immigrant communities in the U.S. -- that of their exiled family members in Miami.

Relaxing the flow of funds from the U.S. would also turn a communist need to our advantage. The more Cuba depends financially on the U.S., the more leverage we will gain in pushing for economic and political reform. Cutting the regime off from sources of financing may have made sense after the fall of the Soviet Union, when Cuba had nowhere else to turn. But now it has Venezuela.

With Fidel Castro's removal from power and imminent demise, the key obstacle to reform within the regime has disappeared. A new generation of bureaucrats now has a chance to gain influence. Many of today's younger "communists" are less interested in the Revolution than in maintaining stability -- and much less interested in Venezuela's patronage than in normalizing relations with the U.S. For Cuba's proud armed forces, the prospect of becoming servants to Mr. Chávez is not attractive. Unfortunately, U.S. stubbornness leaves them little choice.

Cuba's increasing dependence on Mr. Chávez is dangerous for the U.S. Venezuela uses oil money to fuel a global campaign against America. Venezuelan intelligence services set up shop wherever they can in Latin America to eradicate government officials educated in the U.S. or suspected of pro-American sympathies. Bolivia, Ecuador and Nicaragua are falling firmly into Venezuela's orbit. And throughout the Non-Aligned Movement, Mr. Chávez trades oil money for diplomatic support against the U.S. in a new kind of Cold War. Worse, after his recent election victory, Mr. Chávez seems to be claiming a mandate for an even more stridently Castroist and anti-American position -- all of which will influence the direction of the Cuban regime.

Looming on the horizon is an even greater threat. Iran's intelligence services -- perhaps the most prolific and sophisticated terrorist organization in the world -- use diplomatic channels to build their network. And there are clear indications of a renewed Hezbollah effort in South America. Thus Venezuela's new alliance with Iran represents a grave danger to the whole hemisphere. Venezuela is already putting enormous pressure on Cuba to expand its ties with Iran; an Iranian foothold just 90 miles from our own shores would be a catastrophic setback in the war on terror.

Relaxing Cuba's isolation would help diminish a gathering threat to national security, and bring hope to Cubans everywhere that the long tragedy of communism and exile may finally be coming to an end.

Mr. Loyola is a Fellow at the Foundation for the Defense of Democracies.