A chilling portrait of the workings of the world’s mafias

The forensic account of the world’s mafias, from Japan’s Yakuza to Italy’s ’Ndrangheta

by: Review by John Lloyd

Federico Varese, who has made organised crime a life’s work, is the capo di tutti capi of mafia studies. His desire to pierce ever more deeply through the layers of violence, comradeship, greed, corruption and pathos of men, at once parasitical on societies and contemptuous of them, plunges him into their worlds to discover that, different as the mafias are, at root they are the same. They destroy, and claim to create honour.

Two of the most chilling observations in this learned, fluent book is, first, that the mafias “put themselves forward as institutions of government, ultimately in competition with the legitimate state”. Second, that “mafias thrive in democracies”. Varese quotes Antonio Calderone, a Sicilian boss turned pentito (informer), as saying that he and his comrades were instructed to vote only for the Christian Democrats, who “were a democratic party, truly democratic. They’d share power. The Mafia could get along with that”.

Totalitarian regimes, such as the Italian Fascists, suppressed the mafia almost to extinction; democracy restored, they grew again. Only now — with massive policing, greater ease of sentencing, increased surveillance and pentiti — is the Sicilian mafia facing, if not extinction, then severe reduction. But the Neapolitan Camorra and above all the Calabrian ’Ndrangheta across the straits of Messina have grown and grow still. Calabresi families are rich on the proceeds of the heroin trade from the container port of Gioia Tauro (unfortunately Varese doesn’t say much about them here).

Mafia life is often short and usually tense. The Russian vory v zakone (thieves-in-law), spawned in Soviet prison colonies, live more than any other by their own law, spurning contact with state and police, vicious in their feuds. The Japanese Yakuza, who like to trace their lineage back to the samurai (Varese thinks their origins are in late-19th-century gamblers), settle scores with a sword — less because of samurai forebears, more because carrying a gun is a serious offence in Japan.

Mafias sometimes side with, and are used by, states. The Hong Kong Triads, facing pro-democracy demonstrations in 2014, took the side of the Chinese authorities in confronting the young demonstrators — and gained some credit with Beijing. Where mafia are powerful, as the drug cartels in Mexico and the Wa heroin refiners in Myanmar’s Shan and Kachin regions (said to process 45 per cent of world supply), they create their own “states” with laws, social provision and a savage punishment code.

These are male societies: in no mafia are women allowed to play a role (with exceptions, as when the Yakuza wife Fumiko Taoka took over, for three years, the 23,000 strong Yamaguchi-gumi group, after her husband died). Love is dangerous for men of honour, leading to confidences and possible betrayal. When, in 2014, I met Elisabetta Tripodi, the brave mayor of the ’Ndrangheta town of Rosarno, she told me that two ’Ndrangheta women had turned informer: “It was better for their children to co-operate with the police.” One was killed, her body dissolved in acid, and the other survived to testify against members of her own family. Resulting sentences totalled 600 years.

The life of a mafia boss is harried and risky. Using his own and other sources, Varese gives a detailed description of one Merab, a vory v zakone boss in Georgia, trying to arrange a grand meeting in Italy of fellow bosses that would produce some agreements and raise his status. With the police in Georgia, Russia and Italy aware of most of his moves, Merab finally pulls it off, and wins a bonus: the assassination of a powerful rival, Khasan.

Mafias like to see themselves represented with dignity, if not approval: they love the Godfather film trilogy with its emphasis on honour, love of family and restraint. A vor in the central Russian city of Kazan, Radik Galiakbarov, took to speaking like Marlon Brando’s Godfather, even jutting out his lower jaw. Mesmerising as the films are, they romanticise: Galiakbarov was a sadistic thug who ruled by terror for 20 years.

Varese does not romanticise. Forensically neutral in describing horrors, he ends by saying that “the pain caused . . . can never be condoned”. But it can be understood, and he assists us greatly in that.

The writer is a contributing editor

Really Bad Ideas, Part 3: Government Debt Isn’t Actually Debt

The failure of fiat currency and fractional reserve banking to produce a government-managed utopia is generating very few mea culpas, but lots of rationalizations.

Strangest of all these rationalizations might be the notion that government debt is not really a liability, but an asset. Where personal and business loans are bad if taken to excess, government borrowing is not just good on any scale, but necessary to a healthy economy. Here’s an excerpt from a particularly assertive version of this argument:
What if every government paid off its national debt? 
(Medium.com) – IT might make you feel better but tomorrow if the US Federal Government, or Australia or the UK repaid the entirety of its national debt, it would make not one dollar’s difference to your bank account.
In fact the economy would tank. 
“If America repaid all its national debt tomorrow, we very likely would crash into the mother of all great depressions long before the debt is ‘paid off’”, says economist, Professor Randall Wray. 
There were six times in US history in which budget surpluses were achieved for long enough to retire a significant amount of debt. Five of those were followed by depressions, the last of which culminated in the Great Depression of the 1930s. 
The last time America ran a significant budget surplus (about 2.5 years) was under President Clinton. The 2002 recession is a direct result of Clinton’s 1999 surplus which forced the domestic private sector into deficit. Consumer spending  fell, unemployment rose and a recession occurred. 
The economy crashed first in 2000 and then onwards into the Great Recession that began in 2007. 
Economist Ellis Winningham concurs with Professor Wray that the economy would ‘crash’ long before the outstanding debt would be retired. 
“The surplus would then become a deficit again,” he said. 
“But reducing or retiring the debt isn’t what caused the economic downturns. It was the surpluses that caused it. Simply put, you cannot operate an economy with no money in it.” 
So why have we convinced ourselves that government debt is the mother of all evil? That somehow, if the government is in surplus, our bank accounts will automatically improve? 
In fact, as we shall see, the precise opposite is what would probably happen. 
What is debt? 
Anyone who has ever been chased by a debt collector has come to associate the word ‘debt’ as necessarily scary, bad and to be avoided. If you are a household, this is likely to be true. 
But debt has an entirely different meaning for governments. 
To whom is the national debt owed? That would be us: the people. 
But this truth has been avoided in favour of eliciting a pavlovian response based entirely on the principle that a government budget is the same as that of a household. 
“People think that public debt is like a household debt, hence, they buy into the neoliberal nonsense about the government going ‘bankrupt’ and then it’s financial armageddon and we will all die,” says Winningham. “It’s total nonsense. The public debt is just a bunch of savings accounts that pay interest. 
“People think it will improve their lives because they believe that the government’s debt is their debt. In reality, the government’s debt is the private sector’s asset.” 
In truth, there is no such thing as the national debt beyond a rhetorical device used to scare the public into submission. 
In the US, the National Debt is the sum-total of all US dollars ever issued by the Federal Government, from the nation’s founding up until this very moment, that have never been taxed away by the Federal Government. 
The national debt is actually the government’s savings account. 
“From around the 1790’s until today, 2017, the US government has issued, after taxes, $18 trillion dollars for everyone in the non-government sector to use,” says Winningham. “In fact, the national debt has been around for over 170 years now, so at some point, you’re going to have to start understanding that it is not an actual problema. 
“Further, you need to start understanding that when you accuse Obama, or Bush, or Trump of adding to the national debt, you’re actually accusing them of adding US dollars to the US economy. Or, more precisely, you’re accusing them of adding US dollars to our national savings.”

Let’s start with the idea that the 2000 tech stock crash was caused by the tiny (and in any event fictitious) surpluses run by the Clinton administration in the 1990s.

What actually happened in that decade was a massive increase in societal debt via the private sector – encouraged by the Federal Reserve’s decision to bail out every entity anywhere in the world that ran into financial problems. Long Term Capital Management, Russia’s default, Mexico’s peso crisis, and the Asian Contagion were all met with lower rates, loan guarantees and aggressive money printing.

The result was a torrent of hot money, much of which flowed into US tech stocks, sending their valuations to stratospheric, completely unsustainable levels (while filling government coffers with capital gains tax revenues). The inevitable crash had nothing whatsoever to do with those temporary surpluses and everything to do with equity valuations that had exceeded anything seen during even the Roaring 20s.

As the following chart illustrates, US total debt rose from 235% of GDP in 1995 to 250% in 2000, producing the tech bubble. And then it really got going as the government responded to the subsequent bust with even easier money, producing a housing bubble that in its own way was as historically extreme as the tech bubble. When this burst we got the Great Recession – which was then countered with massive increases in government debt worldwide.

Through these booms and busts, the entity doing the actual borrowing didn’t matter. What did matter was the amount of new debt being created. The government could be the main borrower as it was post-2008 or it could use lower interest rates and loan guarantees to encourage the private sector to borrow as in the 1990s. Either way the result was a destabilizing credit bubble.

As for the assertion that governments paying off debt lead to depression, a quick stroll through US financial history paints a different picture, with long periods of more-or-less balanced budgets during which debt/GDP fell steadily.

Especially interesting is the half century between the Civil War and WW I, in which government debt plunged in relation to GDP – to pretty close to zero — but the global economy grew steadily with minimal inflation. This was the age of the Classical Gold Standard in which the supply of money – and by implication the borrowing power of governments – was limited by the dominance of sound as opposed to make-believe fiat money. It was ended not by a financial crisis related to government budgets but by war and ideology — an ending that could have been avoided by a few personnel changes atop several European countries.

So here’s an alternative explanation for the relationship between government debt and financial crisis: Excessive debt in any sector – government, corporate, household, whatever – produces asset bubbles that inevitably burst, yielding recessions, depressions, and – in response – massive increases in new government borrowing. Avoid debt binges and you avoid asset bubbles and speculative manias. Avoid manias and the government has little need for crisis borrowing.

Instead of lurching to another level of New Age financial experimentation when the current bubble bursts, a historically-literate society would return to the classical gold standard and perhaps even ban government debt entirely.
But of course if we were historically literate we wouldn’t be in the current fix. So expect the “government debt not only doesn’t matter, it’s actually a form of wealth!” argument to win out during the next crisis, ushering in the final, fiery act of the fiat currency experiment.

Yellen and Draghi had good reason for Jackson Hole reticence

Regulation and free trade, not monetary policy, dominated central bankers’ speeches

by: Mohamed El-Erian

World view: Mario Draghi, ECB president, with Janet Yellen, Federal Reserve chair, and Haruhiko Kuroda, governor of the Bank of Japan, at the Jackson Hole symposium © Bloomberg

Primarily an academic-oriented event since its inception in 1978, the annual gathering of central bankers and economists hosted by the Kansas City Fed sometimes veered into current monetary policy issues (most notably in 2010 when then-chair of the Federal Reserve, Ben Bernanke, signalled a pivot from using unconventional monetary tools to normalise malfunctioning financial markets to also taking virtually sole responsibility for delivering better macroeconomic outcomes). Many were hoping that this year’s Jackson Hole symposium would provide insights on important policy issues now facing systemically-important central banks. Instead, both headline speakers — Fed Chair Janet Yellen and ECB President Mario Draghi — avoided them, opting to tell politicians about the importance of financial regulation and free trade.

This was not for an absence of content or timeliness, nor was it for lack of relevance to “Fostering a Dynamic Global Economy”, the theme of this year’s symposium. Wrapped in unusual uncertainties, these two central banks face delicate policy trade-offs of direct relevance to growth and financial stability. Instead, both leaders were looking to, and succeeded in maintaining policy optionality, albeit for different reasons. With that, markets will have to wait for clarity on policy issues that have a material impact on both the fundamental — and technical — underpinnings of asset prices.

Many had hoped that Chair Yellen would shed light on how the Fed intends to handle the competing claims on monetary policy from persistently low inflation and what the staff has judged to be “elevated” asset prices. There were hopes that President Draghi would detail the ECB’s approach to gradually tapering its large-scale purchases of market securities, including calibrating and sequencing this with steps to restore policy interest rates back to positive levels while navigating the stronger euro currency. The real optimists had also wondered whether, with Governor Haruhiko Kuroda of the Bank of Japan also at the gathering, there could even be signals on whether, and how, more than one systemically-important central bank could simultaneously normalise monetary policy in an orderly fashion.

Every one of these hopes was dashed. Rather than comment on monetary policy, Chair Yellen chose to defend the progress made in recent years on financial regulation and warned about the dangers of excessive de-regulation. President Draghi also steered clear of immediate policy issues, and this notwithstanding the additional pressures associated with the recent strengthening of the single currency. Instead, he opted to defend free trade, stressing the importance of making it more inclusive, and reinforced Chair Yellen’s emphasis on the importance of prudential financial regulation and international standards.

Chair Yellen and President Draghi had good reasons to disappoint the many eager for policy insights. The Fed is well embarked on a “beautiful normalisation” (borrowing a concept used a few years ago in a different context by Ray Dalio, the founder of hedge fund Bridgewater). Without derailing growth or destabilising markets, it halted QE, raised rates three times, and signalled its intention to contract its balance sheet. Facing a range of opinions on the ECB’s governing council, Draghi had little to gain (and lots to lose) from pre-empting the September policy meeting. And, when it comes to global feedback loops, neither they nor Governor Kuroda are in a position as yet to opine with sufficient authority on the prospects for simultaneous normalisation, especially given uncertainties about productivity, wage formation and the political enabling environment for the much-needed policy transition away from excessive reliance on central banks.

Last week’s symposium left lots of open questions for markets that, given very profitable adaptive expectations, are now deeply conditioned to rely on central banks to boost asset prices, repress financial volatility, and influence asset class correlations in a manner that rewards investors and traders even more. This won’t matter in the short-run as central banks are likely to continue to err on the side of dovish patience in what will be remembered as the loosest tightening cycle in modern history. Over the longer-term, however, it heightens the risk of possible collateral damage to the economy from artificially elevated asset prices, particularly if political conditions continue to delay much-needed pro-growth measures.

Mohamed El-Erian is chief economic adviser to Allianz and author of the book ‘The Only Game in Town’

Bankers and Economists Fear a Spate of Threats to Global Growth


Janet L. Yellen, the Federal Reserve chairwoman, with Mario Draghi, the president of the European Central Bank, and Haruhiko Kuroda, the head of the Bank of Japan, at the annual conference in Wyoming sponsored by the Federal Reserve Bank of Kansas City. Credit Martin Crutsinger/Associated Press.      

GRAND TETON NATIONAL PARK, Wyo. — In the decade since the financial crisis, economic policy makers, professors and protesters have gathered here every August to argue about the best ways to return to faster economic growth.

This year, they gave up.

The formal agenda and corridor conversations at the annual conference hosted by the Federal Reserve Bank of Kansas City instead focused mostly on making sure things don’t get worse.

Financial regulators warned against deregulation. Proponents of free trade warned against protectionism. Jerome H. Powell, a Fed governor, warned against the almost unthinkable possibility that the United States might fail to pay its debts.

Monetary policy lost its usual place in the spotlight. The annual conference is an international affair, attracting central bankers from around the world, and it usually focuses on that line of work. But there is a sense among central bankers that they are doing what they can, and that growth remains slow because of structural problems that require other kinds of policy interventions.

“Some of you flew 10, 15 hours to get here, and you’ve been sitting here and you haven’t heard anything about monetary policy,” joked Jason Furman, who was head of President Barack Obama’s Council of Economic Advisers. Then he dived into an unrelated talk about the benefits of government spending.

Both Janet L. Yellen, the Fed’s chairwoman, and Mario Draghi, head of the European Central Bank, gave speeches that focused on issues other than monetary policy. Ms. Yellen spoke instead about the dangers of financial deregulation; Mr. Draghi, on the dangers of protectionism.

The world’s major economies are all growing for the first time since the crisis, but the expansion is tepid and fragile.

The most immediate threat is posed by the looming deadline for Congress to raise the federal “debt ceiling,” allowing the government to borrow money to pay its bills. Federal debt is widely viewed as the world’s safest investment, and even a temporary break in payments could cause a financial crisis.

Congressional leaders and administration officials insist that the necessary legislation will pass before the government reaches its borrowing limit sometime in October, but President Trump on Thursday described the situation as a “mess.”

Mr. Powell, a Republican who helped persuade his party to raise the debt ceiling in 2011 and 2013, warned in a pair of interviews on the financial networks CNBC and Fox Business that a default would deliver “a major shock to the economy.” That is “not something we need right now,” he added dryly. Mr. Powell also emphasized that the Fed could not shield the economy from the consequences.

Much of the formal discussion was devoted to the global turn toward protectionism. The trend is highlighted by Britain’s decision to withdraw from the European Union, and by Mr. Trump’s scattershot threats to impose restrictions on imports to the United States. It can also be seen in a decline of trade as a share of global economic activity in the decade since the crisis.

“People are concerned whether openness is fair, whether it’s safe and whether it’s equitable,” Mr. Draghi said.

Economists have long preached that trade among nations is all of those things, and many at the conference view the backlash as a public relations problem.

Trade, in this view, has become a scapegoat for issues including the decline of manufacturing in developed economies and the rise of income inequality. The evidence suggests technological change has played the predominant role in reducing manufacturing employment; globalization is a bit player by comparison.

Alan Blinder, an economist at Princeton University, observed that people generally accept job losses that they attribute to technological change but are angered by job losses that they attribute to trade policies. The economic effects are basically identical; the political consequences are remarkably different.

Referring to the founding father of the economic analysis of trade, Mr. Blinder said, “We economists think that David Ricardo got it mostly right 200 years ago, and a lot of people think he got it badly wrong, and we haven’t convinced them in 200 years.”

But there is an emerging mountain of evidence that economists also have significantly and systematically understated the disruptions caused by increased trade for workers, particularly in manufacturing, their families and their communities.

“The backlash against globalization does not arise because people doubt trade’s overall benefits,” said Nina Pavcnik, a professor of economics at Dartmouth College. “The backlash reflects that trade makes some individuals worse off.”

The idea that developed nations should focus on reaping the benefits of trade, and then worry about offsetting the costs, has produced large benefits, particularly for the wealthy — and large uncompensated costs, particularly for the workers.

Peter Schott, an economist at Yale, said researchers needed to understand why workers had struggled to find new jobs. While the shock of increased trade with China was a one-time event, Mr. Schott said such research could shape public policies that would help workers displaced by other shocks, like improved technology.

Ms. Yellen devoted her keynote address at the conference to a careful defense of the changes made after the financial crisis that aimed to improve the resilience of the American financial system. The Trump administration is pushing to loosen those ties, and Ms. Yellen warned that anything more than modest changes could be bad for the economy.

“Enhanced resilience supports the ability of banks and other financial institutions to lend, thereby supporting economic growth through good times and bad,” she said.

Mr. Draghi touched on the same theme at the end of his speech.

“There is never a good time for having lax regulation,” he said.

Even the protesters gathered outside the conference changed their tone. The liberal group Fed Up was founded four years ago for the purpose of urging the Fed to pursue faster economic growth. This year, however, members of the group donned “Yellen wigs” and held a rally in support of a second term for Ms. Yellen.

Ms. Yellen’s four-year term as Fed chairwoman ends in early February, and Mr. Trump has said he is considering whether to replace her.

The protesters said they were not satisfied with the economic recovery. The share of American adults without jobs remains higher than before the crisis, and the numbers are significantly worse among minorities. Wage growth remains weak.

But they are worried that Ms. Yellen’s departure would make things worse. A new Fed chairman might be inclined to raise interest rates more quickly. They see a longer-term risk, too, that less regulation would lead to another economic crisis.

“Yellen’s work is not done,” said Apryl Evelyn Lewis, 34, from Charlotte, N.C. “I don’t agree with the Fed’s recent decisions to raise rates. But Yellen’s record over the years shows that, over all, she cares about people like me.”

Washington holds the key to gold’s fortunes
US political developments could herald two very different scenarios for the yellow metal

by: Henry Sanderson

Investors have historically turned to gold in periods of strife © Bloomberg

Donald Trump’s promise to turbocharge the US economy sent gold tumbling in the weeks after his election. His failure to do so has seen the yellow metal more than recover its losses in 2017.

Now, after touching $1,300 a troy ounce this month for the first time since Mr Trump was elected, investors and analysts say Washington will be central to whether gold can extend the 12 per cent rally it had chalked up this year.

The bearish scenario for gold will unfold if the White House and the Republican-controlled Congress deliver a package of tax cuts that re-animates the struggling dollar and sends expectation for interest rates higher. Gary Cohn, head of the White House national economic council, said on Friday that the administration was pushing for a package of tax cuts to be passed by the end of the year.

It was this prospect that sent gold sliding almost 10 per cent between the US presidential election and the end of the year. Given that the metal offers no yield to investors, it typically fares badly during periods when interest rates are rising.

“Investors came into 2017 expecting a boost from Washington in the form of tax cuts and potentially infrastructure spending — resulting in the so-called ‘reflation’ trade,” Russ Koesterich, a portfolio manager at BlackRock, noted. “Gold’s performance may be most closely linked with what happens in DC.”

However, US politics could yet prove the catalyst for gold to extend a rally few saw coming at the turn of the year. Steven Mnuchin, the US Treasury secretary, has said Congress has until late September to raise the country’s self-imposed debt ceiling. Failure to do so could lead to default, and political wranglings over lifting the limit have already begun.

“We’re in this strange unfamiliar situation: for the most of the last five or six years the geopolitical risk was outside the US and now it’s within the US,” said Mr Koesterich. “If Washington stumbles of if there’s an issue with the debt ceiling that would produce some risk-off and a rally for gold.”

Gold was approaching a record high the last time Congress left global investors on edge by almost failing to raise the debt ceiling in 2011. The prolonged machinations prompted rating agency S&P Global Ratings to strip the US of its AAA credit rating for the first time.

In addition to the debt ceiling, investors say a ratcheting up of global geopolitical risk, principally from the tensions between North Korea and the US, could also propel a metal that investors have historically turned to during periods of strife.

“At this time of heightened geopolitical risk, when Venezuela is on the brink of chaos and tensions are growing between North Korea and the US, there is the possibility of an event in the coming months which causes investors to seek to reduce their risk exposure,” argued James Luke, a fund manager at Schroders.

We’re Holding Pyongyang to Account

The U.S., its allies and the world are united in our pursuit of a denuclearized Korean Peninsula.

By Jim Mattis and Rex Tillerson

    A rally in Pyongyang against U.N. sanctions, Aug. 11. Photo: Zuma Press

In the past few months, multiple illegal North Korean ballistic-missile and ICBM tests—coupled with the most recent bellicose language from Pyongyang about striking the U.S., Guam, our allies and our interests in the Asia-Pacific region—have escalated tensions between North Korea and America to levels not experienced since the Korean War.

In response, the Trump administration, with the support of the international community, is applying diplomatic and economic pressure on North Korea to achieve the complete, verifiable and irreversible denuclearization of the Korean Peninsula and a dismantling of the regime’s ballistic-missile programs. We are replacing the failed policy of “strategic patience,” which expedited the North Korean threat, with a new policy of strategic accountability.

The object of our peaceful pressure campaign is the denuclearization of the Korean Peninsula. The U.S. has no interest in regime change or accelerated reunification of Korea. We do not seek an excuse to garrison U.S. troops north of the Demilitarized Zone. We have no desire to inflict harm on the long-suffering North Korean people, who are distinct from the hostile regime in Pyongyang.

Our diplomatic approach is shared by many nations supporting our goals, including China, which has dominant economic leverage over Pyongyang. China is North Korea’s neighbor, sole treaty ally and main commercial partner. Chinese entities are, in one way or another, involved with roughly 90% of North Korean trade. This affords China an unparalleled opportunity to assert its influence with the regime. Recent statements by members of the Association of Southeast Asian Nations, as well as other regional and global voices, have made clear the international community holds one view regarding North Korea’s provocative and dangerous actions: They must stop. Pyongyang must stand down on those actions.

China has a strong incentive to pursue the same goals as the U.S. The North Korean regime’s actions and the prospect of nuclear proliferation or conflict threaten the economic, political and military security China has worked to build over decades. North Korea’s behavior further threatens China’s long-term interest in regional peace and stability. If China wishes to play a more active role in securing regional peace and stability—from which all of us, especially China, derive such great benefit—it must make the decision to exercise its decisive diplomatic and economic leverage over North Korea.

Our diplomatic approach also proceeds through the United Nations. The Security Council’s recent unanimous vote imposes new sanctions on North Korea and underscores the extent to which the regime has chosen to isolate itself from the international community. This vote, which also had Russia’s support, reflects the international will to confront the North Korean regime’s continuing threat to global security and stability.

We urge all nations to honor their commitments to enforce U.N. Security Council sanctions against North Korea and to increase diplomatic, economic and political pressure on the regime, specifically through the abandonment of trade, which finances the development of ballistic and nuclear weapons. The U.S. continues to consolidate international unity on the North Korean issue through increased engagement at the U.N., at regional diplomatic forums, and in capitals around the world.

While diplomacy is our preferred means of changing North Korea’s course of action, it is backed by military options. The U.S. alliances with South Korea and Japan are strong. But Pyongyang has persistently rebuffed Seoul’s attempts to create conditions whereby peaceful dialogue can occur, and has instead proceeded on its reckless course of threats and provocation. As a result of these dangers, South Korea’s new government is moving forward with the deployment of U.S. Terminal High-Altitude Area Defense against the threat. We commend South Korea’s decision to deploy this purely defensive capability.

Installing Thaad launchers on the Korean Peninsula and conducting joint military exercises are defensive preparations against the acute threat of military actions directed against the U.S., our allies and other nations. China’s demand for the U.S. and South Korea not to deploy Thaad is unrealistic. Technically astute Chinese military officers understand the system poses no danger to their homeland.

Absent China using its influence to show the world how a great power should act to resolve such a well-defined problem as North Korea’s pursuit of nuclear weapons and long-range missile capability, others in the region are obliged to pursue prudent defensive measures to protect their people. China’s Security Council vote was a step in the right direction. The region and world need and expect China to do more.

The U.S. is willing to negotiate with Pyongyang. But given the long record of North Korea’s dishonesty in negotiations and repeated violations of international agreements, it is incumbent upon the regime to signal its desire to negotiate in good faith. A sincere indication would be the immediate cessation of its provocative threats, nuclear tests, missile launches and other weapons tests.

The U.S. will continue to work with our allies and partners to deepen diplomatic and military cooperation, and to hold nations accountable to their commitments to isolate the regime. That will include rigorous enforcement of sanctions, leaving no North Korean source of revenue untouched. In particular, the U.S. will continue to request Chinese and Russian commitments not to provide the regime with economic lifelines and to persuade it to abandon its dangerous path.

As always, we will embrace military preparedness in the defense of our homeland, our citizens and our allies, and in the preservation of stability and security in Northeast Asia. And we will say again here: Any attack will be defeated, and any use of nuclear weapons will be met with an effective and overwhelming response.

North Korea now faces a choice. Take a new path toward peace, prosperity and international acceptance, or continue further down the dead alley of belligerence, poverty and isolation. The U.S. will aspire and work for the former, and will remain vigilant against the latter.

Mr. Mattis is U.S. secretary of defense. Mr. Tillerson is U.S. secretary of state.

Slowly but Surely, Japan’s Military Prowess Grows

By Phillip Orchard


The notion that the best defense is a good offense is gaining traction among Japanese decision-makers. On Aug. 4, newly appointed Defense Minister Itsunori Onodera said Tokyo would begin considering whether to allow its military to carry out pre-emptive strikes against overseas targets. Such a move would be a substantial reinterpretation of Japan’s post-World War II defense policy, which has generally abided by constitutional stipulations limiting the use of force to self-defense. Prime Minister Shinzo Abe quickly walked this back, saying he had no plans to consider the issue. Japan’s 2017 Defense White Paper, released the following day, made no mention of such a policy shift. But Abe did note that escalating threats from China and North Korea have made Japanese defense guidelines effectively obsolete — a sentiment echoed in the white paper.

Despite Abe’s dismissal of the issue, there’s enough smoke around pre-emptive strikes to suggest that Tokyo is taking the possibility seriously. In March, a research commission (of which Onodera was a member) set up by the ruling Liberal Democratic Party called for Japan to arm itself with long-range weapons to address the growing threat from North Korea. In May, following a visit to the Pentagon, Onodera said Washington had given Tokyo tacit approval to do so. Shortly thereafter, several reports alleged that Abe’s government was in discussions to buy Tomahawk cruise missiles from the U.S., potentially giving Japan the capability to pre-emptively disrupt a North Korean missile launch.

Japan has a fundamental desire and ability to project power and to give its military freer rein to operate abroad. A push for the Tomahawks would show how the emerging crisis on the Korean Peninsula is creating a sense of urgency in Tokyo to do so. But at the same time, Abe’s apparent unease with saying so publicly underscores the stiff domestic political currents that will, at least for now, keep Japan’s drive for a modern military from moving too fast.

Japanese Prime Minister Shinzo Abe speaks to journalists at his official residence in Tokyo on early July 29, 2017, following the launch of North Korea’s missile into Japan’s exclusive economic zone. STR/AFP/Getty Images
Japan’s Trajectory
Japan has been toeing the line on remilitarization for years. Following World War II, U.S. security guarantees gave Japan room to channel most of its energy into economic development. But they also allowed Japan to build up substantial defensive capabilities, laying the groundwork for a force that could eventually project power. And though Japanese policy still bans offensive weaponry such as long-range bombers or missiles, many of Japan’s recent procurements are capable of playing more than purely defensive roles.

In 2008, for example, Japan began procuring a fleet of aerial refueling tankers, signaling an interest in longer-range missions. The Izumo-class helicopter carrier it launched in 2013, which is seen as a possible precursor for a future homegrown fixed-wing aircraft carrier, has spent much of this year participating in joint drills with the U.S. and other regional powers far from Japanese waters. Tokyo is reportedly planning to purchase at least three high-altitude long-endurance drones from the U.S., which would give Japan the ability to conduct pro-operational surveillance and post-op damage assessments over foreign airspace — say, as part of a pre-emptive strike across the Sea of Japan.

Under Abe, meanwhile, the government has been methodically working to lay the legal groundwork for a more pronounced break from its pacifist constraints. In 2014, the government approved a reinterpretation of the war-renouncing Article 9 of the Japanese Constitution. This granted the military powers to exercise the right of collective self-defense — essentially allowing Japanese forces to come to the aid of allies under attack during operations deemed necessary for Japanese security. Two contentious security laws implemented in 2016 formalized the reinterpretation and expanded the scope of the type of operations that the Japanese military can support. Abe’s government also removed a ban on weapons exports, indirectly boosting the country’s capacity to produce its own arms.
The Imbalanced Alliance
Japan’s primary motivation for remilitarization stems from China’s ability to threaten it from further afield. Japan must import nearly all the oil and raw materials it requires to function both economically and militarily and, thus, needs open, unfettered access to critical shipping lanes in the East and South China seas. The robust defensive capabilities Japan developed during the latter half of the 20th century may be sufficient to deter an invasion of the homeland, but they cannot secure Japan’s vital lifelines further afield or even eliminate the North Korean threat on its doorstep. For this, Japan relies overwhelmingly on the United States, the dominant naval power in the Pacific, and no nation wants to be fully dependent on another for its core strategic interests.

The U.S. has been cautiously supportive of Japan’s shift in strategic thinking. Over the long term, the U.S. wants its allies to shoulder a greater portion of the burden of regional security, allowing the U.S. to manipulate events from afar without overextending itself.

The U.S. also sees Japanese activities in the Asia-Pacific and Indian Ocean basin as broadly aligned with American interests. Countries that see the U.S. as too distant and prone to distraction to be relied upon in perpetuity find Japan’s vital interest in regional stability reassuring. With governments wary of U.S. power or intentions, Japan can serve as something of a proxy (memories of Japanese imperialism notwithstanding). Japan’s growing maritime security assistance to South China Sea littoral states is illustrative in this regard.

This underscores another, subtler factor in Japan’s strategic thinking — one related to the peculiar mechanics of the U.S.-Japanese defense alliance. While it’s inaccurate to describe Japan as fully free riding on U.S. defense guarantees – its hosting of U.S. military bases remains indispensable to the U.S. extended deterrence posture in the Western Pacific – the alliance is nonetheless heavily imbalanced. Whereas U.S. allies like Australia have routinely participated in U.S. combat operations in distant lands, Japan’s Constitution has allowed it to avoid entangling itself in U.S. engagements abroad without endangering the U.S. security umbrella.

Notably, the white paper released this week included a heavy emphasis on the threat North Korea poses to the U.S. and the benefits of the alliance to the U.S. This reflects a deep-rooted concern in Tokyo that the U.S. may be less inclined to come to Japan’s defense if doing so puts, say, Los Angeles at risk of a North Korean counterstrike. So Japan is developing the ability to project power as a way to both keep the U.S. close and give itself freedom of action if and when U.S. attention strays.
Public Support
The problem for Japan, then, is that where Article 9 once allowed the country to enjoy U.S. security guarantees without sharing much of the costs, it’s now hindering Japan’s ability to pivot at a time when the need to do so is becoming more acute. The Abe administration wants to amend the constitution to prevent the courts from holding up future efforts to rearm. But this would require public approval in a referendum, and its prospects here remain uncertain.

At this point last year, coming off a landslide victory in general elections and poised to become the longest-serving prime minister in Japanese history, Abe and the LDP appeared to have the political capital to push through Article 9 reforms by the end of 2017. Today, due to a series of scandals and the failure of his economic agenda to live up to its billing, Abe’s approval ratings have sunk into the 30s. Public support for Article 9 reform has dwindled as well. Over the weekend, Abe signaled that his Article 9 push would be delayed until he had support from the opposition.

One scandal, which felled Japan’s last defense minister, centered around allegations of misinformation around Japanese peacekeeping activities in South Sudan — a deployment considered a test of public willingness to support an outbound military. This environment may explain Abe’s hesitancy to openly support Onodera’s pre-emptive strike proposal. It also explains his administration’s rhetorical emphasis on the severity of the threat on Japan’s doorstep.

We tend to downplay the role of domestic politics as a factor shaping the geopolitical landscape. This is because political currents are fickle, and campaign pledges typically give way to the realities that drive the behavior of states and shape the international system. But on shorter timelines — like the windows ahead of a pivotal referendum or a decision on whether to participate in a specific combat operation abroad – domestic political factors have more potential to play a decisive role in geopolitical outcomes. In the Japanese context, even if Tokyo can expand its offensive capabilities without Article 9 reform, public uneasiness with remilitarization is likely to suppress defense spending — currently at roughly 1 percent of GDP annually — and hinder Japan’s ability to lay the groundwork needed to act decisively in a crisis.

Still, Abe is not the first Japanese prime minister to lose the support of his people; his own first stint as prime minister ended after just two years in 2007. And yet Abe has managed to guide Japanese defense policy in the direction he wants to take it anyway. Japan has the technological and industrial base and national cohesion to pivot relatively quickly if and when the public consents to it. The current bout of political instability may slow Japan’s military normalization, but it will not derail it. In the meantime, the North Korean threat has firmly aligned U.S. and Japanese interests and underscored the value of the alliance once again. Somewhat paradoxically, this gives Japan time to come to terms with its emerging geopolitical reality at its own pace.