PLA Declares War on Georgetown

There is only one way to describe this picture:

This guy in the camouflage shorts in a kicking motion is a soldier in the People Liberation Army, and he is kicking a defenseless United States college athlete that was just thrown down by another PLA soldier. I note the symbolism of the PLA soldiers outnumber the Americans.

I didn't know until yesterday that the Chinese professional basketball team Bayi Rockets is an Army team, and that every member of that organization is a soldier in the PLA. There are many ways to look at the brawl that ended the Georgetown - Bayi Army Rockets yesterday, and all of them suggest one thing.

This game was heading for this conclusion from the very beginning.

Sports guys quote statistics, so here are few stats from the box score worth considering. By halftime, Georgetown had committed 28 fouls, but Bayi had only committed 11. When the brawl took place, Georgetown was winning the game. After Georgetown left the court, the referees awarded two free throws to the Bayi Army Rockets which tied the game at 64. Those two free throws were among the 57 free throw attempts the Bayi Army Rockets took in the game, a game that was concluded early. That's right, they shot 57 free throw attempts and only scored 64 points. There was a moment during gameplay where a player on the Bayi Army Rockets team started screaming in Coach John Thompson III face apparently threatening him. Noteworthy, news on the game has been censored in China, because the event screams such blatantly dishonest treatment of Georgetown that even the Chinese propagandist can't spin this in a positive light to a Chinese audience who understands basketball.

Sports reporters are calling this fight one of the worst fights in international sports history, and virtually every sports reporter I have heard or read discuss this fight has highlighted that this was more geopolitical than sport. I find that noteworthy, because all the folks who claim to be geopolitical adults for the United States have dismissed the incident as just sport.

Before leaving for China, the Georgetown team prepared for the trip by spending a day at the State Department learning about Goodwill and diplomacy. Here is a memo the State Department needs to learn before they put any more Americans in dangerous situations in China, the PLA is not the Foreign Ministry and should not be treated as part of the normal China that Americans work with. Until US policy accepts that the PLA and the Foreign ministry are playing from two different hands of cards, speak with two very different voices, and have two very different policy agenda's; the United States will not be dealing with China in the way we need to.

This is a political moment nobody in the US wants. Who honestly believes it is simply a coincidence that the current US President loves basketball, that the current Vice President just happened to be in China, and that the referees were not being intentionally biased? Who honestly believes the PLA soldiers weren't told to get out there and be aggressive with the Americans? Even the Chinese information censors know the PLA did this intentionally, because the information about the game makes it too obvious for even them to spin.

Chen Bingde needs to be asked direct questions regarding the lack of discipline by the PLA soldiers during a Goodwill game as was demonstrated. Chinese diplomats need to be asked how a country that loves basketball as much as the Chinese claim to can suggest the officials in this game were not biased beyond the pale as the box score makes clear. American politicians should be asked what they think of PLA soldiers kicking American college students during goodwill tour events apparently supported by the US State Department. Why is it that when Gates went to China, the PLA rolls out the J-20 online, and now that Biden is in China we have the PLA publishing pictures of ex-Varyag sea trials while a PLA basketball team is clearly cheating and fighting American college students? I wonder how long it takes the politico to realize Jon Huntsman almost certainly helped coordinate this trip.

Here is something to think about from the Joint Operating Environment report 2008 ( page 27 PDF).

In the year 2000, the PLA had more students in America’s graduate schools than the U.S. military, giving the Chinese a growing understanding of America and its military.

I wonder what that ratio is today.

It is easy to dismiss all the signs and what they suggest simply because Americans really hope for peace in a future that is shared with China. It is easy to be optimistic when the Chinese Foreign ministry is saying all the right things. Finally, it is getting very hard to ignore that the PLA appears to have a completely different agenda than everyone else.

I don't think we need to make too much of any single small event like this, but I do think it is getting harder and harder to find evidence of US-Chinese harmony anytime soon. China is not a serious military threat to the United States today nor in the near future. However, it is also important folks start to realize that until the PLA demonstrates more maturity, China is also not our friend - and is dedicated towards building a future where they are a serious military threat. We do not have a strategy to prevent conflict with China, indeed we haven't even got to the point where we have a process for deconfliction with China - which we did have with the Soviet Union. Hoping things work out for reasons of economy looks to me like the surest way to get everything wrong.

Wake up folks, America is drifting when it comes to serious political topics related to China, and the increasingly belligerent PLA is only one of several Chinese policy issues that appear to be buried under a mountain of US debt to China.

Thoughts on the Future of the DoD Budget

By now everyone has had a chance to review where we stand with the debt agreement reached in early August. This post is simply a way to document the process and consider where it may be heading, and specifically how that will impact the maritime services.

The White House fact sheet on the deal notes a $350 billion reduction to the base DoD budget over the next ten years that is part of the initial +$900 billion in discretionary spending cuts. The cut is similar to the President's April 13 speech, where $400 billion cut in national security spending was proposed over 12 years. The $350 billion reduction is intended to be implemented after completion of the current DoD roles and missions review, which is expected to be completed by October of this year.

The bipartisan debt deal includes a trigger that adds another $1.5 trillion in total spending cuts, which are to be identified by the new super committee. The super committee is to report its recommendations by November 23 and by no later December 23 Congress is expected to vote on the committee recommendations. If the super committee proposal doesn't pass by December 23, an automatic trigger to ensure that at least $1.2 billion in cuts over ten years will kick in. Within this $1.2 billion cut, the White House fact sheet says "If the fiscal committee took no action, the deal would automatically add nearly $500 billion in defense cuts on top of cuts already made."

The super committee consists of the following Senators and Representatives.

• Rep. Jeb Hensarling of Texas (Republican and committee co-chair)
• Sen. Patty Murray of Washington (Democrat and committee co-chair)
• Rep. Chris Van Hollen of Maryland (Democrat)
• Sen. Jon Kyl of Arizona (Republican)
• Sen. John Kerry of Massachusetts (Democrat)
• Sen. Pat Toomey of Pennsylvania (Republican)
• Sen. Max Baucus of Montana (Democrat)
• Sen. Rob Portman of Ohio (Republican)
• Rep. Xavier Becerra of California (Democrat)
• Rep. Dave Camp of Michigan (Republican)
• Rep. James Clyburn of South Carolina (Democrat)
• Rep. Fred Upton of Michigan (Republican)

There are several ways to look at this, but I note the final total of security spending cuts in the bipartisan deal brokered on August 2 would call for $884 billion over 10 years if no other deals were reached. That figure is noteworthy, because the Gang of Six deal was $886 billion in security spending.

Moving ahead, there is a timeline to watch this unfold from a DoD perspective.

September

In September Congress will return from vacation and are likely to be dominated by the politics of a new Obama job program. To date the Obama administration has been able to get passed all previous economic related bills, so there is no reason to expect this one (whatever it is) would get passed. I have no idea what the Obama administration will recommend, but it is hard to believe the Obama administration would recommend anything favorable to the maritime services.

That doesn't mean they shouldn't. I strongly agree with the economists who have been critical of the Obama administrations implementation of Keynesian economics, because I believe it has been a spectacular failure primarily because the focus on service related jobs has done almost nothing to create legitimate supply chains throughout the economy with the government investment. Several economists have noted that most of the money headed to the private sector ends up going to suppliers that are outside the United States, and have thus far produced far less economic impact (and jobs) than the administration was hoping for. The only manufacturing industry in the United States where money is almost guaranteed to hit suppliers in the United States is shipbuilding, which ironically is largely a government dependent manufacturing sector anyway. It is hard to imagine a scenario where the Obama administration would consider the option of increasing spending in shipbuilding as a jobs program for manufacturing. If they did, building Coast Guard vessels would be as much if not more important priority than building Navy ships, but the likelihood the Obama administration would try something as intelligent as spend government money on the shipbuilding sector as a jobs program is fairly close to zero. One of the primary reasons is because shipbuilding could takes years to produce desired economic results, and it is hard to imagine the Obama administration has a long term vision for jobs with an election only 15 months away.

By the end of September, the FY12 budget will pass. The House approved budget is $544 billion, but events have likely changed this. It is estimated the final DoD budget will be somewhere between $513 and the $544 billion in the House bill. I suspect the low number will ultimately win given the recent budget cut in the debt deal.

October

Sometime in early October the details of the DoD strategic review will begin to leak, and we will know a lot more about where we are with the future budget. I think I can speak with everyone that the notes by Tim Walton as discussed by Bryan McGrath are troubling. It is hard to imagine a scenario where a "strategic review" conducted by the Pentagon begins with the starting place of budget division 1/3 Army, 1/3 Air Force, and 1/3 Navy/Marines and is taken seriously in this political climate, but that is exactly what Under Secretary of the Army Westphal implied with his answer.

As I have mentioned before, the only way the public will know whether the Pentagon has conducted a legitimate strategic review of roles and missions is if the review details are politically untenable by the vast majority of politicians. It is my sincere hope that throughout the entire month of September the Navy comes out swinging slapping the Army around as a bloated service that needs to be downsized considerably. Undersecretary Westphal is only fooling an uninformed public when the Army claims they can't make dwell time when at the same time they are sending forces to Iraq instead of Afghanistan (see here and here). Don't get me started on the high numbers of people in the bloated Army yet to make a deployment, nor how all of the strategic objectives in Afghanistan are military objectives - not political or economic objectives. The Navy can cream these guys in a public debate, if they try.

But they won't, and we all know it. The think tank community, which is 70-80% retired Army, will encourage 'strategic' policy that keeps the balanced budget approach towards DoD funding. Here is the one ultimate truth, if the DoD proves incapable of producing a real strategic review that makes serious choices based on strategy, and member of the House or Senate that defends the DoD should be called out and probably voted out of office. If the starting place for a DoD strategic review is a 1/3, 1/3, 1/3 budget division, then strategy isn't guiding DoD choices. That basically means the DoD cannot justify their budget of any size, so no total amount of cuts can be regarded as too much. No matter what conclusions the DoD reaches in their review, if it begins with an arbitrary budget division as a non-negotiable starting place, any plan the super committee regardless of how deep the cuts will be just as viable as a DoD plan. October is going to reveal more about the character of DoD leadership than anytime in the last 10 years of war, because for the first time in the 21st century the DoD faces an existential threat - themselves.

October 14 is the deadline for for each committee in the House and Senate to convey their recommendations to the Special Committee.

November

By no later than November 23 the Special Committee is to vote on its report to enact additional cuts towards the $1.5 trillion goal. The politics and political rhetoric leading up to November 23 is unlikely to be coherent, so until we see the final deal on November 23 everything else is just noise.

December

The Budget Control Act of 2011 requires Congress to vote on the Super Committee recommendations no later than December 23, 2011.

Additional Thoughts

See the polls for yourself, the fact is nobody sees defense as the top priority. That doesn't mean folks don't care, only that there are aspects of politics today that have more importance. The nation has been here before, in Vietnam, and depending upon your study of history you can presume how that outcome will be similar to the outcome in this case.

I thought it was noteworthy that both times Ron Paul mentioned militarism of the United States during last weeks Republican debate, the crowd cheered.

Finally, I believe it is difficult to believe that defense will somehow avoid the massive cut. I do not believe the strategic review will be a legitimate review, so I don't see a scenario where the DoD makes a good case for itself. I do believe it is entirely plausible that the final vote on the super committee fails to pass, which kicks in the $884 billion triggered cut. I also believe it is entirely possible that the cut can exceed current levels of suggested cuts if politics begins moving the super committee towards a budget cut greater than proposed $1.5 trillion. It is important to note, the massive $2.4 trillion in cuts will only pay for the budget through March of 2012 and not actually cut much of anything - rather reach a balanced budget through that time frame. If the GDP of the US doesn't grow by 3% as CBO predictions require for all these numbers to work, the cuts to the DoD could go much, much higher.

The number of scenarios that end worse than expectations number greater than the number of scenarios where the DoD doesn't take a major budget cut, and in the context of a poorly conducted strategic review, I have very little faith this will end as optimistic as some presume it will. As Stephen Carmel suggested in his recent speech, the shipping industry is not seeing high volume - indeed is seeing very low business activity for this time of year. All global economic signs, of which the shipping industry is only one, suggests the economy is going to get worse before it gets better. Is the DoD preparing for the worst? Show me one sign, any sign, that they don't need to.

Navy Green Energy Moves One Step Forward

The nation appears to finally be thinking seriously about energy. As blog readers know, I thought the biggest mistake of the Obama administration early on was the focus on health care instead of focusing on renewable energy resources. Most folks disagreed with my opinion, which is fine, but I still believe energy is a strategic issue that government must be focused on, and I do not believe the same is true of health care. The BP spill and the final HCR bill that is more focused on health insurance than health care are two of many factors that have not helped the energy sector move forward in the United States. Refinery issues, nuclear concerns, and the environmental emphasis over drilling are among several other issues. I admit up front I have close ties to the green energy sector that heavily influence my opinions, and my opinions may not be congruent with others or some specific expert that is highly respected. Honestly, the biofuel industry doesn't have legitimate experts yet, just very intelligent theorists and observers, because if it had legitimate experts those folks would be putting Exxon Mobile out of business already.

There is no investment for biofuels in quantities necessary to move the sector forward in any serious way. There is plenty of interest and money, but everyone willing to spend wants to take the technology out of the United States. Startups across California are being offered hundreds of millions of dollars - to leave California and the United States and set up shop elsewhere, including China. It is going to take big regulation changes and incentives just to restore more interest in private sector investment in biofuel technologies in the US, and because green energy is polarized politically, that may not happen. The promise that green energy can grow the US economy in the future is slowly becoming less likely to ever happen. Part of green energy is manufacturing, like solar panels, and those jobs are already following the trend of all manufacturing in the United States and being shipped overseas.

The Obama administration is going to give energy policy a shot. With all due respect to Dr. Steven Chu, many leaders in the green energy industry think you are terrible and so do I, and to his credit the real leader on green energy issues in the United States under the Obama administration has been Secretary of the Navy Ray Mabus.

This is the generic news statement by Reuters of the President's new $510 million plan if you want the summary. Below are some of my thoughts.

The President’s plan is looking to build four biorefineries as a first step. What I appreciate about the plan is that not only does it focus on the energy side of biofuels, but it also involves the USDA on the output side of livestock feed. For algae fuels there are two main products produced from the algae, biofuel mass and livestock feed. Because the price of livestock feed has shot through the roof with the higher cost of corn over the last decade, it has ultimately led to higher costs of just about everything in the food sector. If livestock feed byproduct of biofuel generation can be produced at scale and sold USDA approved for safety, it could legitimate impact market feedstock price and have broad impacts across the food sector. This is particularly appealing not just in the US, where we have a lot of growers, but also in third world nations where high demand for reliable feed exists, but less quality feed is often used because of high costs of quality feed.

The key questions heading forward is whether biofuel companies can, in any way, attract investment money to the US startups that have struggled under the current economy, and if/when the money does come - will the technology (particularly that of the algae growers) scale and work as advertised. There are several algae companies that have working products, but cost and scale are still largely unknowns. The Navy currently buys biofuel from a company called Solazyme, which produces biomass by cooking it. While these are R&D contracts and consist of more than just the fuel, the Navy is still probably paying somewhere between $50 - $150 a gallon for biofuel with these early contracts. For me, I still don't see how a company that has such high costs to cook biomass in a lab is ever going to be competitive on the market, but right now Solazyme is one of the few companies that can produce relatively large quantities of biofuels reliably, so they are getting all the early testing and R&D contracts. Good for them.

I still believe the pond algae companies will be the green energy companies that have the biggest impact to biofuel in the next decade, even though pond algae companies are also the companies US investors are most skeptical of. As I see it, there are a handful of private companies with legitimate human talent and small working ponds currently producing small quantities can demonstrate affordable biomass and feed, and while they are working with limited capital, some of these companies do seem to be on the right track. The clue they probably have a good product? Those pond algae companies with mature strain development processes and established collection technologies are the ones being offered the most money from overseas investors to take their technology out of the US. I have been told more than once from folks at the Department of Energy that there is legitimate concern that the most successful biofuel (specifically algae) technologies that can produce at scale will ultimately be US technologies with ponds developed and established in other countries.

Jim Lane at Biofuels Digest has one of the best detailed looks and analysis of how the President's new plan impacts the Navy.

Finally, there’s the financial program itself, which will provide a strong equity infusion - something on the order, minimally, of $127 million per biorefinery (if in fact four are built, as per the President’s plan). With industry providing a minimum of $127 million per project from their side via the 1:1 match - about the proceeds from one of the several IPOs that have been brought forward (and about what Total, for example, invested in Amyris), that’s between $4 and $6 per gallon of capacity for the equity side of the capital requirements for constructing the plants (based on a 40-60 million gallon capacity).

If the average first commercial advanced biofuels plants cost $8 per gallon of capacity, as the USDA has forecasted, that could mean that either there will be a low debt requirement (reducing the fuel cost, perhaps dramatically), or a desire by the USDA to commission more than four plants

This initiative should produce somewhere between half and two-thirds of the Navy’s 336 million gallon needs, and given program start (after the RFP process) in 2013, look for capacity to become available by 2015 or 2016 - that’s well in time for the Navy’s Green Strike Fleet, and leaves plenty of time for the construction of additional plants to meet future capacity needs.

Jim goes on to advise that the administration should not try to go bigger or faster than 4 biorefinery's, that the nation needs to see that biofuels are legitimate, viable, and can work in the market.

Total annual investment in biofuel industry this year only just recently totaled $10 billion, and that was a global total. In the scheme of our nations energy use, the nation needs to hit 10x that number by ourselves in a single year before we start seeing any impact to the market, and even then investment in all this new technology doesn't guarantee the prices will be better than traditional carbon based fuels. There is certainly the potential, but potential has yet to be proven reality. This plan, even with only $510 million, may in fact be a very smart approach to developing momentum towards biofuels grown in the US. Time will tell, but with the Pentagon now locked into paying $165 per barrel in fuel according to recent Congressional testimony in the House, it is easy to see why just getting a $5 a gallon price in the short term would be a legitimate cost saver to the DoD both now and into the future as quantity would presumably drive costs down further.

If green energy is something you are interested in but don't really know a lot about, I encourage you to subscribe to Jim Lane's daily email newsletter. I've been following it for years, and FYI of the dozen or so biofuel companies I have interviewed and interacted with from an investor perspective, the management of every single one of those companies follows Jim Lane too (it's one of the questions I ask, and I always get a yes).

Tokyo Naval Treaty?

I toss out a couple of thoughts on modern naval arms limitation in my latest WPR column:

China, India and Japan do not appear to be on the verge of breaking the bank in an effort to match each other's construction. Still, from a vantage point of 10 or 20 years out, it might make sense for the Asian powers to think in terms of regulating their naval competition. India, China and Japan can all accomplish their national goals with a limited number of carriers. At some point, additional construction would simply spur the competitors to overbuild. A well-designed treaty on naval arms limitations would recognize economic and power imbalances between the three, take into account strategic realities and try to hold competition to within certain parameters. The motivating logic behind such a limitation runs as follows: India, China and Japan would each be as secure with four carriers as they would with eight, so long as they are assured that the others will not build eight themselves.

Service "Shares"--That Which Cannot Be Discussed

My associate Tim Walton spends a good bit of his time attending events in DC that busy people would often like to go to, but then can't find the time.  He writes up nifty two-page summaries of them, and I shoot them out to a broad and generally appreciative audience.  Building the "brand", you might say.

Well, Tim attended an event yesterday morning hosted by Government Executive magazine, entitled "Focus on Defense:  Innovation and Management in the Military".  The panel featured the collective Undersecretaries of the Armed Services, and the Deputy Chief Management Officer of DoD.

I share a portion of Tim's report here with the broad Information Dissemination audience so that you can see what I consider to be a remarkable exchange during the Q and A toward the end of the report (Re-balancing the Budget?).  Truth be told, the questioner is Tim--a fearless young man with a dazzling mind.  The Undersecretary of the Army's answer--and the quick dismissal of the question by the panel moderator--are emblematic of the bureaucratic rot at the heart of the Department of Defense.  The suggestion that a panel made up of the #2 civilians in each of the Armed Services and devoted to "innovation and management" is the wrong forum for a discussion of one of the basic inputs of the budget process they help oversee--is ridiculous.

______________

Government Executive “Focus on Defense: Innovation and Management in the Military”

16 August 2024 at 0730 at the Crystal City Marriot Timothy B. Clark, Editor at Large of Government Executive, moderated a panel featuring:

Erin C. Conaton, Under Secretary, Department of the Air Force

Joseph W. Westphal, Under Secretary, Department of the Army

Robert O. Work, Under Secretary, Department of the Navy

Elizabeth A. McGrath, Deputy Chief Management Officer, Department of Defense

Budgetary pressures

Under Secretary Work discussed how the US is in its fourth post-WW II buildup and it is unique in four ways.  “Normally, we take cuts out of wartime funds.  Second, this is the first long war we’ve had with an all-volunteer force.  Now, we have a professional force that wants to stay instead of conscripts who wanted to go home.  Right now, the only way you can cut people is cut force structure.  Lastly, during war you normally build an incredible amount, but the Navy and Air Force haven’t built much during the war.” Thus, the age of Navy and Air Force systems has gone up. As the industrial base is already consolidated, precipitous cuts are not an option.

Under Secretary Work further stated DOD runs on processes run on inertia and that a consideration in reforming processes is the political feasibility of change. 

Under Secretary Conaton concurred stating, “we already took the low hanging fruit.”

Under Secretary Westphal argued “if you cut end strength right now too precipitously, then it might not protect programs and be unfair to families.”  He also expressed concern over the health of the defense-industrial base.  He also noted the “Catch-22” in which in order to achieve more efficiency more resources must be initially spent. 

Third Rail Issues

Under Secretary Work noted that since FY 1999 the average cost for sailors has gone up 18% and marines 20%, and when retirement and healthcare costs are added, manpower costs have increased at 27% since 1998, which is much faster than budget increases or inflation. 

The “third rail issues” of Pay, retirement, and healthcare must all be looked at, these third-rail issues.  The last thing we want to do is make choices to destroy the all-volunteer force. 

Rebalancing the Budget?

One questioner asked the panel of Under Secretaries: “We’ve heard there is a strategic review in the Department of Defense under way.  As the nation shifts to a more of an offshore balancing options strategy that primarily relies on the Navy and the Air Force and eschews major ground force commitments, how are the Services preparing to rebalance the current one-third, one-third, one-third allocation to shift resources to the Navy and Air Force?”

Under Secretary of the Army Westphal answered: “It’s not something that at any level we’ve been addressing.  We, the Army, have different stresses [related to the current wars]. […] For the Army, we have yet to achieve our bog to dwell times.  To say we can shift resources is just ridiculous.”  The moderator Timothy B. Clark, Editor at Large, Government Executive, then interjected “I think we can move on to another question.  The question of rebalancing the services is one for the very highest levels of the strategic planning process and doesn’t really apply to this group.”  

Bryan McGrath