The West Must Face Reality in Turkey

Richard N. Haass




NEW YORK – Now that Turkey is at loggerheads with its erstwhile ally, the United States, the country’s currency crisis has morphed into a political problem of the first order. The immediate issue is Turkey’s refusal to release the American pastor Andrew Brunson, who is being held on charges of terrorism, espionage, and subversion for his alleged role in the failed July 2016 coup against Turkish President Recep Tayyip Erdoğan. 

The US government is right to object to Brunson’s detention. But its reaction has been counterproductive. In particular, the imposition of additional US tariffs on imports of Turkish steel and aluminum could further undermine confidence in Turkey’s economy, triggering a wider crisis that would do serious harm to the global economy. Moreover, tariffs allow Erdoğan to blame his country’s economic woes on America, rather than on his own government’s incompetence.

It is still possible that the Turkish government will find a way to release Brunson, and that US President Donald Trump, anxious to demonstrate fealty to the evangelicals who form a core part of his base, will rescind the tariffs. But even if the immediate crisis is resolved, the structural crisis in US-Turkish relations – and Western-Turkish relations generally – will remain. We are witnessing the gradual but steady demise of a relationship that is already an alliance in name only. Though the Trump administration is right to have confronted Turkey, it chose not only the wrong response, but also the wrong issue.

The relationship between Turkey and the West has long been predicated on two principles, neither of which obtains any longer. The first is that Turkey is a part of the West, which implies that it is a liberal democracy. Yet Turkey is neither liberal nor a democracy. It has effectively been subjected to one-party rule under the Justice and Development Party (AKP), and power has become concentrated in the hands of Erdoğan, who is also the AKP’s leader.

Under Erdoğan, checks and balances have largely been eliminated from the Turkish political system, and the president controls the media, the bureaucracy, and the courts. The same failed coup that Erdoğan cites as grounds to imprison Brunson has also served as an excuse for detaining thousands of others. At this point, it is impossible to see how Erdoğan’s Turkey could ever qualify for EU membership.

The second principle underlying Turkey’s “Western” status is alignment on foreign policy. Turkey recently bought more than 100 advanced F-35 fighter jets from the US. Yet, in recent years, Turkey has also supported jihadist groups in Syria, moved closer to Iran, and contracted to purchase S-400 surface-to-air missiles from Russia.

Above all, Turkey and the US find themselves on different sides in Syria. While the Syrian Kurds have been close partners of the US, they have been deemed terrorists by Turkey, owing to their ties to Kurdish groups inside Turkey that historically have sought autonomy, if not independence. Against this backdrop, it is not far-fetched to imagine US and Turkish forces coming to blows.

Some might say that the current level of US-Turkish friction is nothing new; the two countries have long had their share of differences. The Turks were not happy with the US decision to withdraw medium-range missiles from Turkey as part of the deal that ended the 1962 Cuban Missile Crisis. The two countries clashed repeatedly over the Turkish intervention and subsequent occupation of Northern Cyprus in 1974, and over US support for Greece. Turkey refused to give US military forces access to Incirlik Air Base during the Iraq war in 2003. And in recent years, the Turkish government has been infuriated by America’s refusal to extradite the Pennsylvania-based cleric Fethullah Gülen, whom Erdoğan believes masterminded the 2016 coup attempt.

Still, what we are seeing today is something different. The anti-Soviet glue that kept the two countries close during the Cold War is long gone. What we have now is a loveless marriage in which the two parties continue to cohabitate under the same roof, even though there is no longer any real connection between them.

The problem is that the NATO treaty provides no mechanism for divorce. Turkey can withdraw from the alliance, but it cannot be forced out. Given this reality, the US and the European Union should maintain a two-pronged approach toward Turkey.

First, policymakers should criticize Turkish policy when warranted. But they must also reduce their reliance on access to Turkish bases such as Incirlik, deny Turkey access to advanced military hardware like F-35s, and reconsider the policy of basing nuclear weapons in Turkey. Moreover, the US should not extradite Gülen unless Turkey can prove his involvement in the coup with evidence that would stand up in a US court and satisfy the provisions of the 1981 mutual extradition treaty. Nor should the US abandon the Kurds, given their invaluable role in the fight against the Islamic State (ISIS).

Second, the US and Europe should wait until the Erdoğan era is over, and then approach Turkey’s new leadership with a grand bargain. The offer should be Western support in exchange for a Turkish commitment to liberal democracy and to a foreign policy focused on fighting terrorism and pushing back against Russia.

Erdoğan recently warned in the New York Times that the US-Turkish partnership “could be in jeopardy,” and that Turkey would soon start looking for new friends and allies if US unilateralism and disrespect were not reversed. In fact, the partnership was already in jeopardy, largely because of Turkish actions, and Erdoğan had already begun the process of looking for new friends and allies. It is time for the US and Europe to adjust to this reality.


Richard N. Haass, President of the Council on Foreign Relations, previously served as Director of Policy Planning for the US State Department (2001-2003), and was President George W. Bush's special envoy to Northern Ireland and Coordinator for the Future of Afghanistan. He is the author of A World in Disarray: American Foreign Policy and the Crisis of the Old Order.

The Tax-and-Spend Health-Care Solution

Honest subsidies beat cross-subsidies. They’d encourage competition and innovation.

By John H. Cochrane


Why is paying for health care such a mess in America? Why is it so hard to fix? Cross-subsidies are the original sin. The government wants to subsidize health care for poor people, chronically sick people, and people who have money but choose to spend less of it on health care than officials find sufficient. These are worthy goals, easily achieved in a completely free-market system by raising taxes and then subsidizing health care or insurance, at market prices, for people the government wishes to help. 
But lawmakers do not want to be seen taxing and spending, so they hide transfers in cross-subsidies. They require emergency rooms to treat everyone who comes along, and then hospitals must overcharge everybody else. Medicare and Medicaid do not pay the full amount their services cost. Hospitals then overcharge private insurance and the few remaining cash customers.


Overcharging paying customers and providing free care in an emergency room is economically equivalent to a tax on emergency-room services that funds subsidies for others. But the effective tax and expenditure of a forced cross-subsidy do not show up on the federal budget.

Over the long term, cross-subsidies are far more inefficient than forthright taxing and spending. If the hospital is going to overcharge private insurance and paying customers to cross-subsidize the poor, the uninsured, Medicare, Medicaid and, increasingly, victims of limited exchange policies, then the hospital must be protected from competition. If competitors can come in and offer services to the paying customers, the scheme unravels.



Photo: iStock/Getty Images 


No competition means no pressure to innovate for better service and lower costs. Soon everybody pays more than they would in a competitive free market. The damage takes time, though. Cross-subsidies are a tempting way to hide tax and spend in the short run, but they are harmful over years and decades. 
We have seen this pattern over and over. Until telephone deregulation in the 1970s, the government wanted to provide telephone landlines below cost. It forced a cross-subsidy from overpriced long distance and a telephone monopoly to keep entrants out and prices up. The government wanted to subsidize small-town air service. It forced airlines to cross-subsidize from overpriced big-city services and enforced an oligopoly to keep entrants from undercutting the profitable segments. But protection bred inefficiency. After deregulation, everyone’s phone bills and airfares were lower and service was better and more innovative.


Lack of competition, especially from new entrants, is the screaming problem in health-care delivery today. In no competitive business will they not tell you the cost before providing service. In a competitive business you are bombarded with ads from new companies offering a better deal.

The situation is becoming ridiculous. Emergency rooms are staffed with out-of-network anesthesiologists. Air ambulances take everyone without question, and Medicare, Medicaid and exchange policies underpay. You wake up with immense bills, which you negotiate afterward based on ability to pay. The cash market is dead. Even if you have plenty of money, you will be massively overcharged unless you have health insurance to negotiate a lower rate.

Taxing and spending is not good for the economy. But it’s better than cross-subsidization.

Taxing and spending can allow an unfettered competitive free market. Cross-subsidies must stop competition and entry at the cost of efficiency and innovation. Taxing and spending, on budget and appropriated, is also visible and transparent. Voters can see what’s going on.

Finally, broad-based taxes, as damaging as they are, are better than massive implied taxes on very few people.

This is why continued tinkering with the U.S. health-care system will not work. The system will be cured only by the competition that brought far better and cheaper telephone and airline services. But there is a reason for the protections that make the system so inefficient: Allowing competition would immediately undermine cross-subsidies. Unless legislators swallow hard and put the subsidies on the budget where they belong, we can never have a competitive, innovative and efficient health-care market.  
But take heart—when that market arrives, it will make the subsidies much cheaper. Yes, the government should help those in need. But there is no fundamental reason that your and my health care and insurance must be so screwed up to achieve that goal.






Mr. Cochrane is a senior fellow of the Hoover Institution at Stanford University and an adjunct scholar of the Cato Institute

Anti-Aging Biotechnologies Will Make Social Security and Medicare Obsolete

Source: https://ourworldindata.org/grapher/birth-rate-the-number-of-births-per-1000-people-in-the-population?country=AUS+CHN+England%20and%20Wales+FRA+IND+JPN+RUS+ESP+OWID_GFR

Source: https://fred.stlouisfed.org/series/SPDYNLE00INUSA

Poverty and Security in Russia

Summary Russia has the 11th-largest economy in the world. But as is the case in many places, its wealth is not evenly distributed throughout the country.  It is also the case that in many countries, underdeveloped areas with high rates of poverty tend to experience more unrest and political instability than developed ones. By identifying the regions of a country with the weakest economies, therefore, it is possible to also discover which areas might pose the largest security threat. This Deep Dive attempts to do just that for Russia. In this report, we identify the poorest regions in the country using a scoring system that employs four economic indicators to measure the level of poverty throughout the country. We then looked at whether these regions have existing political and ethnic tensions that may flare up if economic conditions worsen. We are not forecasting that these regions will destabilize; rather, we are identifying the regions in which unrest could break out if, say, an economic downturn further lowers the standards of living. These conclusions could have broader implications: Internal instability could impact Russia’s capacity to defend its interests abroad in places like Ukraine and Syria and could force Russia into compromises with its adversaries.   Methodology To measure the level of poverty in all 85 Russian regions, we looked at four metrics – average income, average spending, inflation and unemployment – and assigned a score to each region based on the results. For unemployment and inflation, a high value reflects poor economic conditions. For average income and average spending, a low value reflects poor economic conditions. The regions that fell in the highest/lowest 25 percent of the country (depending on the indicator) were given one point and those that fell in the highest/lowest 5 percent were given two points. The regions with the highest scores are the ones that are struggling the most economically. (click to enlarge)   Seven regions stood out the most and, therefore, will be examined further below: the Jewish Autonomous Region in the Far East; Altai, Buryatia and Tuva in Siberia; Ingushetia and Kabardino-Balkaria in the North Caucasus; and Sebastopol in Crimea. Notably, all of them are in Russia’s periphery. (click to enlarge) (click to enlarge)   Jewish Autonomous Region Located in Russia’s Far East federal district, the Jewish Autonomous Region has a population of nearly 65,000, roughly 0.1 percent of Russia’s total population. It has no history of violence or unrest and was officially established in 1934 as a “homeland” for Jews from within and without the Soviet Union. The Soviet Union wanted to encourage the establishment of settlements in remote areas of the Far East, which serves as a buffer against China – but to really protect Russia against any Chinese aggression, the area needed to be populated in larger numbers than it had been. Some Jewish settlers moved to the region, but they were by far outnumbered by ethnic Russian and Ukrainian migrants. Today, only 1 percent of the region’s population is Jewish. (click to enlarge) T he Jewish Autonomous Region has one of the most hospitable climates in the Far East and is one of its wealthiest regions in terms of minerals. It holds deposits of more than 20 different kinds of minerals, including iron, manganese, tin, gold and graphite. Still, the region’s economy is weak. Due to its remote location, it has historically attracted little industrial activity. It has few processing plants for raw materials, so a vast majority of the minerals mined there are processed in other Russian regions. Living conditions are also poor. Regional governor Alexander Levintal said in a 2017 interview with The Guardian that the mass emigration of Jews from the region to Israel in the 1990s had a detrimental impact on the region’s standard of living. According to Levintal, the region’s health care system is still reeling from the departure of roughly 70 doctors to Israel. Although the region has shoddy internet connectivity and transportation links, it has managed to attract more foreign direct investment in recent years. The region received $39.61 million in FDI in 2015, $82.93 million in 2016 and $200.29 in 2017. Investment is largely driven by Russia’s efforts to enhance trade with China. Both countries have invested in a new bridge, set to be completed late this year, linking the Jewish Autonomous Region with Heilongjiang province in China across the Amur River. (The Jewish Autonomous Region is connected to the Pacific Ocean through this river.) Moscow is hoping that the bridge, over which the Tongjiang-Nizhneleninskoye rail line passes, will attract new investment to the region. Russian company Amurprom is set to build a new soy processing plant there, and Chinese investors are constructing a logistics complex to process, store and transport goods between Russia and China. According to the region’s governor, 5 million tons of cargo will be transported across the bridge per year after the first stage of development, and then 20 million tons per year thereafter. For now, Chinese investment in the region isn’t a concern for Russia, partly because the amount of investment there is still small compared to other regions. (Neighboring Amur region, for example, received $971.43 million in total FDI in 2017.) Russia’s priority is still to secure its eastern border by encouraging settlement and economic development in the Far East, but so far, it hasn’t succeeded. The recent investments in this area are merely a new attempt at a long-standing imperative.   Altai, Buryatia and Tuva Altai, Buryatia and Tuva are located in Siberia on the Russian border with Mongolia. They are all mountainous and poorly connected to the rest of the country. Altai, which also shares a border with China and Kazakhstan, is particularly isolated and has no rail connection to the rest of Russia. As part of Russia’s fertile crescent, all three regions’ economies feature agriculture (mainly crops, but sheep and cattle rearing is also common is Tuva). Timber and natural resource extraction are also important sources of revenue. Buryatia is by far the richest in terms of natural resources, containing 48 percent of Russia’s zinc deposits, 24 percent of lead, 37 percent of molybdenum and 27 percent of tungsten, as well as substantial gold deposits. Buryatia is therefore the most valuable of the three regions to the central government. (click to enlarge)   In Tuva, the ethnic Russian population has been declining while the number of ethnic Tuvans, a Turkic-speaking people with Mongol influences, has been rising – which may pose problems for Moscow in the future. In 1959, ethnic Russians constituted 40 percent of the population in the region. In 2010, that figure was only about 16.3 percent. Some 82 percent was ethnic Tuvan. (click to enlarge)   These demographic trends have caused some tension. In 2016, a newly formed civil society group representing Russian speakers in Tuva wrote an open letter to the Kremlin expressing concern over the lack of ethnic Russian representatives in local government and the teaching of Russian as a foreign language in schools. (Tuva has two official languages: Russian and Tuvan.) The letter received no response from the Kremlin and was criticized by the regional government, but it indicates that there has been some resistance from the ethnic Russian population to the demographic changes. The federal government likely didn’t respond because the demographics in Tuva do not pose an imminent threat to Moscow, at least not right now. It’s possible that if this trend continues, Russia could see separatist claims emanating from this region, which only joined the Soviet Union in 1944. (Between 1921 and 1944, it was an independent state, though officially recognized only by the Soviet Union and Mongolia.) There is currently strong support in Tuva for the central government: In the presidential election in March, Vladimir Putin received 91.98 percent of the votes in Tuva, where the turnout was 93.66 percent. In addition, Defense Minister Sergey Shoigu hails from this region. The central government also enjoys strong support in Altai and Buryatia. In Buryatia, 73.72 percent of the population voted for Putin in the 2018 election, compared to 66.2 percent in 2012. In Altai, 70.62 percent voted for Putin in 2018, compared to 66.87 percent in 2012. These three Siberian regions, therefore, are not an immediate security risk for Moscow, which has more pressing concerns in Crimea and the North Caucasus.   Sevastopol The location of a strategic naval base for Russia’s Black Sea Fleet, Sevastopol is a port city that has been under Russian administration since 2014, when Russia took control of the Crimean Peninsula. The European Union has imposed restrictions on economic relations with Crimea and Sevastopol – which were extended in June 2018 until June 2019. These measures include an import ban on goods from Crimea and Sevastopol and restrictions on investments by European companies. EU exports of certain goods and technologies – including those related to transport, telecommunications, energy, oil production and refining, and extractive technologies for other natural resources – are also banned. (click to enlarge)   For now, Crimea can’t independently sustain its economy. Subsidies from Moscow currently account for 67 percent of Crimea’s budget revenue and 61 percent of Sevastopol’s. Of the 30.4 billion rubles ($483.2 million) in investment the city received in 2017, about 76 percent came from the federal government. Effectively, Sevastopol, and the rest of the peninsula, is living off Moscow. The government’s investments have had some positive effects. In 2016, Sevastopol’s economy grew by nearly 7 percent. The average unemployment rate fell from 8.7 percent in November 2016 to 4.1 percent in the same period of 2017. Yet, Sevastopol is still one of the poorest areas administered by Russia. Secretary of the Russian Security Council and former FSB director Nikolai Patrushev has warned many times, most recently this month, about the possible destabilization of Crimea, mainly at the hands of Ukrainian nationalists and Tatar activists. This suggests the region’s political position is still tenuous. To secure its control over the peninsula in the long term, Moscow needs to support economic development there, since economic hardship can foster dissent.   Ingushetia and Kabardino-Balkaria Located in the North Caucasus, Ingushetia and Kabardino-Balkaria are the areas that are most concerning for Moscow. Poverty and underdevelopment have made both regions ideal recruiting grounds for separatist factions and Islamist groups. Ingushetia has one of the highest unemployment rates in Russia at 27.9 percent and the highest number of people living under the minimum income standard calculated by the government for each region. Kabardino-Balkaria’s unemployment rate is also high at almost 12 percent. The populations of both regions are among the youngest and best connected to the internet in the country.   (click to enlarge)   Ingushetia and Kabardino-Balkaria depend heavily on government subsidies. Ingushetia is among the top 10 recipients of funding from Moscow. But as is the case in Sevastopol, money transfers from the federal government haven’t been enough to solve the regions’ underlying socio-economic problems. Both regions have valuable natural resources, including oil and gas in Ingushetia near Malgobek and molybdenum and tungsten in Kabardino-Balkaria near Tyrnyauz in the Baksan River valley. Rich deposits of gold, chromium and nickel can also be found in the Malka River valley. But like the Siberian regions, Ingushetia and Kabardino-Balkaria have yet to see a significant economic boost from these natural resources. (click to enlarge)   In addition, both regions have experienced ethnic tension and resistance to central government control. In Kabardino-Balkaria, there has long been a divide between the Balkars, a Turkic ethnic group, and the Kabardins. The Balkars have a history of separatist activity. In 1944, most Balkars were deported to Kazakhstan and Kyrgyzstan after the Soviet government accused them of being Nazi sympathizers. It wasn’t until the late 1950s that they were allowed to return. In 1992, the Balkars voted to secede from Kabardino-Balkaria, wanting to form their own region and to be better represented in Moscow. Valery Kokov, who was leader of the region from 1990 until 2005, eventually succeeded in suppressing the Balkar and Kabardin nationalist movements. And in recent years, there have been few signs of separatist activity on the scale of the 1990s. Since conflict broke out in nearby Chechnya in the 1990s, Kabardino-Balkaria has been a target for Islamist groups. In 2005, terrorists raided several buildings linked to Russian security forces in Nalchik, the regional capital. More than 100 people, including at least 14 civilians, were killed during the fighting, which lasted more than two days. In 2011, Islamist insurgents conducted several attacks, including at a ski resort area where three Russian tourists were fatally shot. According to the Investigative Committee of the Russian Federation, 97 people, including 42 Russian security officers and 24 guerrilla fighters, were killed in the republic in 2010. Spillover from the Chechen wars also affected Ingushetia, which remains one of the most unstable regions in Russia. During the wars, Ingush volunteers fought alongside Chechen insurgents against Moscow. In 2004, Chechen and Ingush militants raided more than a dozen government buildings in Nazran, the region’s largest city. At least 92 people were killed, including at least 47 police officers. But rebellion in this region is nothing new. Ingush rebels resisted both the monarchists and the communists during the Russian civil war. From 1944 to 1977, Ingush insurgents led a bloody campaign against the federal government after ethnic Ingush were deported during World War II to Kazakhstan and other parts of Central Asia. More recently, Ingush volunteers have joined Kiev’s fight against Russia-backed separatists in eastern Ukraine. With the rise of the Islamic State, Islamist militancy has become a bigger concern in the Caucasus. In 2016, Russian officials estimated that some 3,500 Russian citizens, many from the North Caucasus, had left Russia to join the fighting in Syria and Iraq. Some sources suggest that the actual number may exceed 5,000. Now that the Islamic State has lost most of its territory, Russian citizens who fought alongside IS will likely try to return to Russia and could pose a new security threat in the North Caucasus. For Moscow, any instability in this region is troubling because the North Caucasus acts as a critical buffer against Turkey and Iran. It’s essential for Moscow, therefore, to keep a lid on separatism, Islamist insurgency and ethnic tensions in the region. It’s willing to fight to maintain control here, as it demonstrated during the Chechen wars, which occurred at a time when Russia was much weaker than it is today. The biggest upcoming challenge in the North Caucasus will be managing the return of militants from the Middle East.   Conclusion All the regions identified as the poorest and, therefore, most susceptible to instability are along Russia’s periphery. Moscow needs to maintain control of these areas for strategic depth. It has focused its limited resources on those regions that are most precarious in the short term: Sevastopol and the two republics in the North Caucasus, Ingushetia and Kabardino-Balkaria. In Sevastopol, Moscow’s main strategy has been to invest massively in the city and in Crimea, with the aim of securing control over the peninsula in the long-term. In the Caucasus, too, Moscow has provided substantial subsidies but has also tried to dismantle the terrorist networks that could use poor economic conditions to their advantage, to recruit new members and inspire hopes of an Islamic caliphate on Russia soil. Moscow has so far managed to contain the insurgents there, but now the big question is how it will handle the return of fighters from the Middle East who gained both ideological fervor and fighting experience, including against Russia’s own forces, from their time defending the caliphate in Syria and Iraq.

The Winners and Losers in a Cashless Society

By Ben Walsh




       llustration: Gunnar Rathbun/Invision for Walmart 


If you have been to a gentrified burrito chain or a venture-funded salad shop recently—and frankly, as a reader of a fintech newsletter, the odds are you have—you’ve probably noticed that some of these places have stopped accepting cash.

Slate’s Henry Grabar has a comprehensive look at the rise of cashless stores and restaurants. Places are going cashless for pretty much the reasons you would expect. Their customers can pay with a card (“almost everyone who used cash had a card,” according to Dos Toros’ co-founder Leo Kremer), and dealing with cash is sort of a pain.

Big companies like Walmart and Target have installed machines to count and account for cash in their stores and they “recycle” it back to cashiers to cut costs. Walmart says the machines helped them eliminate 7,000 accounting jobs.

But it’s not just that cash has downsides. The middlemen who facilitate card payments are out there promoting card payments and trashing cash. And payment processing is a great business to be in. The total value of processing fees paid by American merchants last year—$97 billion—actually exceeds the estimated $55 billion annual costs of cash (theft, transportation, etc.) Find a hedge fund analyst who owns Visa or Mastercard and they will tell you why payments processing is maybe the greatest business ever (or ask Dan Loeb about Paypal).

With cash, virtually no one has an incentive to promote it. Yet when you describe it in basic terms, cash is amazing: “It can be given by anyone, accepted by anyone, settled and cleared instantaneously,” University of California at Irvine professor Bill Maurer told Grabar.

Refusing to accept cash excludes some people, but for certain stores, it won’t necessarily exclude any customers. That’s another way that fintech is replicating the pitfalls of traditional finance: The well-off and the well-banked are paid to make cashless purchases, while the poor and underbanked pay dearly for things like money orders.

There are things like Amazon Cash out there, which lets customers convert physical U.S. dollars into digital 7-Elevens and CVS’s, and turn them into Amazon bucks that they can then spend on Amazon. It’s a novel idea, but by design it traps customer money at Amazon. And really, the most expensive problems and biggest inconveniences the un- and underbanked have don’t center around buying things.

The best idea that could help the un- and under-banked would be postal banking. Until such a program sharply reduces the number of people without sufficient access to the financial system, cashless merchants will be a clear marker of who the intended customer is, and is not.