US says China has rare-earth materials monopoly

The U.S. Government Accountability Office (GAO) warned about China's power over supplies of rare-earth materials on April 14, 2010.

According to the GAO, China controls 97 percent of the rare-earth materials vital to the military, mobile phone and clean-energy technology sectors – a situation that could put the United States in a perilous strategic position if it is not remedied.

GAO also said the United States previously handled all stages of the rare-earth material supply chain, but now most rare-earth processing is performed in China, giving it a dominant position that could affect worldwide supply and prices. On top of that, rebuilding a U.S .rare-earth supply chain could take up to 15 years.

Rare-earth materials are used in many applications for their magnetic and other distinctive properties and include 17 elements with names such as lanthanum, lutetium, neodymium, yttrium and scandium.

Some U.S. government and rare-earth industry officials think China increased export taxes on all rare-earth materials to a range of 15 percent to 25 percent and in the future China will only export finished rare-earth material products with higher value, according to the GAO.

A company called Molycorp Minerals, owned by Chevron Corp (CVX), has a large deposit of rare-earth elements at its Mountain Pass Mine in California. But the mine lacks manufacturing assets to process the ore into finished components. Also, it doesn't have 'heavy' rare-earth elements necessary for many types of industrial and military hardware.

Other deposits exist in the United States and elsewhere, but it could take nearly 10 years just to get production online.

By People's Daily Online

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Prospective U.S. Cyber Commander Talks Terms of Digital Warfare

For years, the military has worried about the vulnerability of the United States to cyberattack — and how and when to return fire in digital warfare. Now, the issue is taking center stage, as the Senate considers the nomination of an Army general to head the military’s first four-star Cyber Command.

In a hearing this morning, the Senate Armed Services Committee will review the nomination of Army Lt. Gen. Keith Alexander to be the head of the Pentagon’s new Cyber Command. It’s a chance to get a closer look at the kind of capabilities for waging network warfare the Pentagon thinks it needs. But it’s also likely to raise questions about just how far the military is willing to go in attacking foreign networks.

Last year, Secretary of Defense Robert Gates ordered the creation of U.S. Cyber Command to coordinate all of the military’s online activities. Alexander is in many ways a logical pick. He comes from the world of electronic intelligence: He is director of the National Security Agency (NSA), the super-secretive military and intelligence outfit at Fort Meade, Maryland, that is charged with code-cracking and foreign communications interception. And he will head an organization that, in large part, will be an important line of defense against cyberspying. (He’s a classmate of Gen. David Petraeus, West Point class of ‘74.)

But Alexander will also have to answer questions about how the United States might retaliate if it comes under online attack. Military planners are mindful of incidents like the massive cyberassaults against Georgia in 2008 and Estonia in 2007. In both cases, fingers pointed to Russia, but experts questioned whether the Russian government had a direct hand in events, and pointed instead to the role played by patriotic volunteers (or “cybermilitias”) who orchestrated the online assaults.

In both of those cases, cyberattacks threatened civilian networks and the financial system. It’s unclear if the military could retaliate in kind. In a series of written answers to questions from senators (.pdf), Alexander said, “It is difficult for me to conceive of an instance where it would be appropriate to attack a bank or a financial institution, unless perhaps it was being used solely to support enemy military operations.”

And the scope of responsibility for the new commander is also quite sweeping (Alexander will also be “dual-hatted,” staying on as head of the NSA). In written answers, Alexander said the organization’s new missions would include “integrating cyberspace operations and synchronizing warfighting effects across the global-security environment; providing support to civil authorities and international partners; directing global-information grid operations and defense; executing full-spectrum military cyberspace operations; serving as the focal point for deconfliction of DOD offensive cyberspace operations; providing improved shared situational awareness of cyberspace operations, including indications and warning.”

In other words, everything but the kitchen sink. We’ll be watching the hearing, and will hope to get more answers on Alexander’s vision for the new command

• By Nathan Hodge
• http://newscri.be/link/1073631

The Return of Industrial Policy

Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.

PLAY NOW: RODRIK: The Return of Industrial Policy

CAMBRIDGE – British Prime Minister Gordon Brown promotes it as a vehicle for creating high-skill jobs. French President Nicolas Sarkozy talks about using it to keep industrial jobs in France. The World Bank’s chief economist, Justin Lin, openly supports it to speed up structural change in developing nations. McKinsey is advising governments on how to do it right.

Industrial policy is back.

In fact, industrial policy never went out of fashion. Economists enamored of the neo-liberal Washington Consensus may have written it off, but successful economies have always relied on government policies that promote growth by accelerating structural transformation.

China is a case in point. Its phenomenal manufacturing prowess rests in large part on public assistance to new industries. State-owned enterprises have acted as incubators for technical skills and managerial talent. Local-content requirements have spawned productive supplier industries in automotive and electronics products. Generous export incentives have helped firms break into competitive global markets.

Chile, which is often portrayed as a free-market paradise, is another example. The government has played a crucial role in developing every significant new export that the country produces. Chilean grapes broke into world markets thanks to publicly financed R&D. Forest products were heavily subsidized by none other than General Augusto Pinochet. And the highly successful salmon industry is the creation of Fundación Chile, a quasi-public venture fund.

But when it comes to industrial policy, it is the United States that takes the cake. This is ironic, because the term “industrial policy” is anathema in American political discourse.  It is used almost exclusively to browbeat political opponents with accusations of Stalinist economic designs.

Yet the US owes much of its innovative prowess to government support. As Harvard Business School professor Josh Lerner explains in his book Boulevard of Broken Dreams, US Department of Defense contracts played a crucial role in accelerating the early growth of Silicon Valley. The Internet, possibly the most significant innovation of our time, grew out of a Defense Department project initiated in 1969.

Nor is America’s embrace of industrial policy a matter of historical interest only. Today the US federal government is the world’s biggest venture capitalist by far. According to The Wall Street Journal, the US Department of Energy (DOE) alone is planning to spend more than $40 billion in loans and grants to encourage private firms to develop green technologies, such as electric cars, new batteries, wind turbines, and solar panels. During the first three quarters on 2009, private venture capital firms invested less than $3 billion combined in this sector. The DOE invested $13 billion.

The shift toward embracing industrial policy is therefore a welcome acknowledgement of what sensible analysts of economic growth have always known: developing new industries often requires a nudge from government. The nudge can take the form of subsidies, loans, infrastructure, and other kinds of support. But scratch the surface of any new successful industry anywhere, and more likely than not you will find government assistance lurking beneath.

The real question about industrial policy is not whether it should be practiced, but how. Here are three important principles to keep in mind.

First, industrial policy is a state of mind rather than a list of specific policies. Its successful practitioners understand that it is more important to create a climate of collaboration between government and the private sector than to provide financial incentives.

Through deliberation councils, supplier development forums, investment advisory councils, sectoral round-tables, or private-public venture funds, collaboration aims to elicit information about investment opportunities and bottlenecks. This requires a government that is “embedded” in the private sector, but not in bed with it.

Second, industrial policy needs to rely on both carrots and sticks. Given its risks and the gap between its social and private benefits, innovation requires rents – returns above what competitive markets provide. That is why all countries have a patent system.

But open-ended incentives have their own costs: they can raise consumer prices and bottle up resources in unproductive activities. That is why patents expire. The same principle needs to apply to all government efforts to spawn new industries. Government incentives need to be temporary and based on performance.

Third, industrial policy’s practitioners need to bear in mind that it aims to serve society at large, not the bureaucrats who administer it or the businesses that receive the incentives. To guard against abuse and capture, industrial policy needs be carried out in a transparent and accountable manner, and its processes must be open to new entrants as well as incumbents.

The standard rap against industrial policy is that governments cannot pick winners. Of course they can’t, but that is largely irrelevant. What determines success in industrial policy is not the ability to pick winners, but the capacity to let the losers go – a much less demanding requirement.

Uncertainty ensures that even optimal policies will lead to mistakes. The trick is for governments to recognize those mistakes and withdraw support before they become too costly.

Thomas Watson, the founder of IBM, once said, “If you want to succeed, raise your error rate.” A government that makes no mistakes when promoting industry is one that makes the bigger mistake of not trying hard enough.

Copyright: Project Syndicate, 2010.
www.project-syndicate.org

Republished with kind permission.
Source: http://www.project-syndicate.org/commentary/rodrik42/English