I've been reading Akerlof and Shiller's new book on the importance of animal spirits, and in particular on the key economic role played by confidence. In this light, I found these poll results quite thought-provoking. 

In February 2008, pollsters asked the US public to identify the world's leading economic power; 41% chose the US, followed by 30% opting for China. That was before the fall of Lehman Brothers. By November last year, the order had reversed: 44% now though China was the world economy's top dog, as against 27% for the US.*

If Akerlof and Shiller are right, then this shift in relative confidence about US economic performance will have real world consequences. One might be a reduced tolerance for economic (and other) behavior on the part of China that is seen as damaging to US interests. Cue the latest round of US criticism of China's exchange rate policy, and Beijing's all-too predictable response. 

• A big welcome to Business Spectator readers who have discovered us after reading Mark Thirlwell's piece on sovereign risk, which appeared earlier on The Interpreter.
• US carbon dependency projected to be only slightly lower in 2034 than it is today.
• Ten myths about Russia's demography. It's not as bad as you think.
• Bridging the Strait: despite irritants such as the arms sales issue, the China-Taiwan relationship continues to grow closer.
• NY Times columnist Ross Douthat says that '(f)or rogue states, the bomb is an obvious way to offset America's enormous conventional military advantage — and this will hold true no matter how low our nuclear stockpiles go.' True, but a little incongruous in an article arguing against nuclear abolition. Doesn't this imply that the US could afford to go without nukes?
• Some rough news for the International Criminal Court's prosecutor: the Court's Pre-Trial Chamber says there wasn't 'sufficient evidence' that the first Sudanese militia leader to be brought before the court, Bahar Idriss Abu Garda, was 'criminally responsible either as a direct or as an indirect co-perpetrator'.  
• Photo tour of a Soviet Strategic Missile Forces museum in the Ukraine.
• Green police: Audi's Super Bowl commercial.

Far from 'dancing around' Chris Kenny's point that the surge set the military conditions for the orderly withdrawal of US forces from Iraq, I agree with him. My post had nothing to do with the merits of the surge, the success of which (along with other tactical and strategic levers that were employed) is self-evident.

Rather, my argument was that Chris' piece spoke in absolutes such as '(US) victory and a functioning (Iraqi) democracy', or in uncontrasted relativities such as 'relatively peaceful'. It spoke of the Iraq war in terms of its impact on the US, and equated victory with an orderly departure of its troops. 

In the same vein, Jim Molan says the counterinsurgency is finally, as wars go, a success. But when hundreds of Iraqis are routinely being killed (and more injured) every month by insurgents, I would argue that the counterinsurgency has been successful in relative but not absolute terms. And the latter is what we should be looking at more closely, because only Iraqi security forces will be able to achieve absolute success. 

My point is that the political measure of success appears to be the ability to withdraw US troops, not the security of the Iraqi population. By adopting this measure, Western commentators tend to conflate withdrawal with success, with little regard for the circumstances for the Iraqis left behind.

James Brown served in a strategy role for the NATO mission in Afghanistan.

The name Zabihullah Mujahid may belong to one man or maybe to five. He may live in Afghanistan or Pakistan. His name would certainly have been absent from deliberations at the London Conference on Afghanistan last week. Yet he may be the greatest asset the Taliban has in a war that is increasingly being decided on perception of victory rather than actual tactical military victory.

Zabihullah Mujahid is the moniker adopted by the media spokesman for the Taliban. He is the Taliban's Gerry Adams – eloquent and available for comment 24 hours a day. He is Mullah Omar's mouthpiece in a war dominated by instantaneous media coverage. Mujahid puts the Taliban into a symbiotic relationship with Afghan and international journalists who crave regular information but receive little from Afghan and Western military forces.

The Taliban's media operations are extremely active – in the last week of January over 160 statements were released relating to issues ranging from local attacks on Western forces to denial of peace talks. The majority come from Zabihullah Mujahid. The Taliban practice the golden rule of strategic communications – he who fills the news vacuum first, wins.

When Taliban forces attacked government buildings in Kabul on 18 January, the first authoritative figure quoted on the attack in the New York Times was Zabihullah Mujahid. Sure, the NYT admitted Mujahid's initial claims of casualties among Afghan officials were an exaggeration, but they reported his words all the same. When Taliban gunmen stormed a UN guesthouse in late October last year and killed three UN workers, Mujahid explained the Taliban's motivation: 'This is our first attack on UN staff in Kabul because of the elections...and we will continue the attacks'.

 This post on the Wall Street Journal's China Real Time blog caught my attention:

China may be the world’s third largest economy, but Chinese brands still remain less well known than foreign counterparts and product safety problems continue to plague “made-in-China” goods.

Lately I've started seeing TV ads for Great Wall Motors. Now, with a brand name like 'Great Wall', it's pretty hard for the company to hide its heritage, but still, it is notable how the ads actually play up the fact that the cars are Chinese ('Great Wall Motors — the great cars of China').

Maybe the company disagrees with the WSJ and thinks Australians feel positively about Chinese brands. Or they are trying to tackle the negative perception of Chinese products head-on. Either way, brave strategy.

Major Gen (Retd) Jim Molan is author of Running the War in Iraq.

Rodger Shanahan has locked horns on the subject of victory in Iraq, a small aspect of Chris Kenny's article on how tough Barack Obama is. (Ed. note: here's Kenny's reply to Shanahan.)

Of course the stated aim of the war was related to WMD and there were no WMD. Of course there were probably other ways (over the long term) of isolating Iraq, controlling or finding out about WMD, and they were not used. Of course the cost to the participants was high in terms of life and treasure, and there is no point (particularly for the families) in mentioning that by duration, size and intensity, this must be one of the lowest casualty wars in history. Of course you cannot wage war with the aim of regime change and expect ethical endorsement.

But it was reasonable at the time to suspect that Saddam had, or had the capability to produce, WMD, having previously developed and used them. Who can say, even with the wisdom of hindsight, that the errors that the US Administration made in removing the regime resulted in a better or worse world situation than not taking action.

And which Iraq war are we still complaining about – the three weeks of invasion or the eight years of recovery from error? In my view, the invasion was a strategic disaster and the counter insurgency is finally, as wars go, a success.

Three points leaped out of Sarah Palin's interview on FOX News Sunday.

The first was the eagerness with which Governor Palin affirmed that she 'would' run for president if it made sense for the US and the Palin family. Her response was much less equivocal than I would have imagined. She wants that job, bad.

Second, she went awfully close to saying that, if he wants to get re-elected, President Obama should declare war on...someone:

She was not precise about who exactly. Yet she cannot have meant to say that the US commander-in-chief should risk American lives (and take foreign lives) in order to win an election. Perhaps it points to the difficulty of segueing between the roles of political leader and political commentator.

Finally, Sarah Palin set herself up for increased scrutiny of her knowledge of national and international events. During the 2008 race, she implied, she was green. What about now? 'I sure as heck better be more astute on these current events and national events than I was two years ago'.

The New York Times has reported Palin is getting daily emails from advisers on policy developments. But based on the reportage in Race of a Lifetime (which I review in this Saturday's Sydney Morning Herald), it would take a vast number of such emails before Governor Palin has the minimum knowledge required to withstand the rigors of a presidential race.

Chris Kenny writes:

Rodger Shanahan makes clear his revulsion at the 'tragedy of the Iraqi adventure' and the audacity of anyone finding something positive to say about ongoing efforts to stabilise that country's future.

But he dances around the one point I made about Obama's Iraq policy; that is, simply, that the orderly withdrawal of US troops owes more to the success of George W Bush's surge strategy than to any decisions taken by the Obama Administration.

I pointed out that Democrats and our own Labor Party opposed the surge strategy and preferred a humiliating exit for the US. This would have seen the US leave in unambiguous defeat, it would have left Iraq in an even more precarious position and it would have emboldened terrorists everywhere.

Whatever Shanahan thinks of Bush's original decision to overthrow Saddam Hussein, perhaps he would at least concede that the surge strategy has allowed an orderly American drawdown and a more stable platform for the establishment of a democratic Iraq.

On Afghanistan, the criticism from the Left has been that the Taliban flourished because the US was distracted by Iraq. So Obama's commitment to allocate sufficient resources and focus to Afghanistan is welcome. Facing such seemingly insoluble conflicts it may seem trite to talk of victory and defeat, except to note, as George Orwell said, that the quickest way to end a war is to lose it.

• Inside Indonesia looks at corruption in the country's richest district.
• The WSJ China blog points out that the bluster from China during last year's iron ore pricing negotiations is notably absent this year.
• A Canadian think tank says there's likely to be very little growth in global nuclear power generation out to 2030.
• The Indian Express sensibly editorialises that it is India which is being harmed by the hysteria over student safety in Australia. India's foreign minister is sounding conciliatory, too.
• SBY showing a thin skin when it comes to public criticism.
• Evan Osnos says the climate for foreign businesses in China is turning distinctly chilly:

For much of the past two decades, the obstacles facing foreign entrepreneurs have been structural: bureaucratic delays, restrictions on moving foreign currency, and so on. But in my conversations with foreign business people these days, the current malaise centers on a less concrete—and, thus, fixable—sense of obstruction. The concern these days is not about the vagaries of what was once called the Iron Rooster, but about the reality of a canny, powerful, well-equipped, urbane counterpart in the global economy, which is beginning to express its own beliefs about fair trade and free flow of information.

• But by contrast, this blogger says foreign businesspeople who believed in the China dream were only fooling themselves anyway.

After a major financial crisis that catches most people by surprise, you tend to see an increase (usually temporary) in sensitivity to future risks. That means analysts in 2010 are going to spend a fair amount of time trying to predict the next disaster.

A candidate that's receiving a growing amount of attention is the return of sovereign risk. Last year's events in Dubai are now seen as an advance warning of troubles ahead; the unfolding Greek drama is a more recent confirmation of the thesis. 

One interesting feature of this rediscovery of sovereign risk is the focus on developed economies, whereas traditionally sovereign risk was mainly about emerging (or submerging) market country risk. An indicator of this trend comes from the world's ratings agencies (themselves looking more than a little devalued by the GFC). 

Thus Spain, Iceland, Greece, Ireland and Portugal have all been downgraded by at least one of the major rating agencies over the past year. And both the UK and US have been warned that their AAA-ratings are at risk. Meanwhile, credit default swaps are sending the same message.

My previous column looked at the Mahathir effect on Malaysia using the map offered by Barry Wain's new book on Malaysia's longest-serving leader. The foreign policy elements in the book point to outcomes at odds with the positions offered by Mahathir's posturing and rhetoric. Consider three examples from the Malaysian maverick:

• Throughout most of his two decades in power, Mahathir had a secret defence agreement with the US that helped reshape US thinking about its bases strategy for the rest of Asia.
• Mahathir was one of the founding prophets of 'Asian values'; the idea of a distinctly Asian way of doing politics and economies. Yet Mahathir's private problems with his immediate Asian neighbours were worse than his public spats with Australia.
• Mahathir's campaign against Australia ended up having a boomerang effect. As soon as Dr M left the scene, every regional prize he'd vetoed was handed to Canberra.

These contradictions may be the lasting foreign policy lesson to take from Australia's long and painful experience with Mahathir Mohamad.

Dougal McInnes is a former transnational issues analyst with the Office of National Assessments, and has worked with the Department of Defence and the Australian Strategic Policy Institute.

'Another day, another global panel, another big fat report.' So quipped Australia's leading figure on nuclear disarmament in Geneva last week.

Professor Gareth Evans, co chair of the International Commission on Nuclear Non Proliferation and Disarmament, was at UN HQ presenting the Commissions report ‘Eliminating Nuclear Threats: A Practical Guide for Global Policy Makers'. (The report was formally launched in Tokyo last December with Prime Minister Rudd.)

Evans told the audience of diplomats (and interested observers like myself) that since 1945 only sheer dumb luck – not policy – has avoided a nuclear catastrophe by accident, design or miscalculation.

The most insightful offerings in Geneva were Evans' pragmatic suggestions to diplomats who spoke during question time.

From Foreign Policy's Passport blog:

Despite having served for years as a distinguished Pakistani diplomat, Akbar Zeb reportedly cannot receive accreditation as Pakistan's ambassador to Saudi Arabia. The reason, apparently, has nothing to do with his credentials, and everything to do with his name -- which, in Arabic, translates to...

Click here to learn more. The whole episode is, shall we say, Pythonesque.

Sam's tongue-in-cheek call for divine blessing for the world's bankers reminded me of this plea for help from a 'Higher Power', and this claim to be 'doing God's work.' Forget all that camel-passing-through-an eye-of-a-needle stuff, perhaps Stephen Colbert was right, and bankers really are God's representatives on earth.

Photo by Flickr user Random Factor, used under a Creative Commons license.

A colleague points me to the Department of Foreign Affairs and Trade's redesigned website. This is a welcome change, as the new site certainly is easier on the eye. Frequent users should drop me a line to let me know whether it is more user-friendly as well.

One man who will be watching this development with great interest is former Executive Director of the Lowy Institute, Allan Gyngell, now heading the Office of National Assessments (ONA). I'm sure Allan scarcely needs reminding that, in November 2008, he took to The Interpreter to ask, 'does ONA have the most boring Australian government website?'

Now, rumint has it that ONA is in the process of tarting up its dreadful website, but still, I'm a little surprised that this nimble little organisation has been caught flat-footed by DFAT.

Photo by Flickr user superciliousness, used under a Creative Commons license.

I don't think I have seen the words 'victory' and 'Iraq' used in the same sentence since President Bush declared in 2003 that the 'Battle of Iraq is one victory in a war on terror...' But having read Sam's link yesterday to a piece by Chris Kenny I was a bit taken aback to find out that the US is going to be victorious a second time:

Even those who opposed the Iraq war should recognise that America leaving the country victorious, with a relatively peaceful and functioning democracy in place, is far preferable to the war having been lost.

I nearly coughed up my falafel when I read this because there is so much to contest about it. I won't go into the meaning of 'victorious' because that's an essay in itself. But when you have lost nearly 4,500 dead and over 30,000 wounded, spent untold billions of dollars, but did not achieve the aim of the invasion (finding WMD, I think — it was so long ago), calling it a victory is 'interesting'.

But leaving aside the notion of a victorious US triumphantly ceasing combat operations seven years later than it thought it had, and only having to leave behind a skeleton force of 50,000, I do take some exception to his view of Iraq as relatively peaceful. Relativity is a funny thing, and if Kenny's intent was to compare Iraq with, say, Afghanistan or Somalia then he may have a point.

But to say that a country in which 253 civilians were killed in December, 118 in January and 80 in the first week of this month is relatively peaceful is drawing a (relatively) long bow. And that's not to mention the Iraqi security forces, or the numbers wounded. Space precludes me from arguing the toss about a 'functioning democracy' (or is that a 'relatively' functioning democracy?).

But the best line from this 'we showed 'em' view of foreign relations comes after the Iraq section:

This leaves Afghanistan. And it is here that there are signs Obama may be learning about the audacity of strength.

Surely after the tragedy of the Iraqi adventure, armchair pundits should be more attuned to the limitations, rather than the audacity, of strength in campaigns in complex environments.

Photo by Flickr user mashroms, used under a Creative Commons license.

I read this:

Britain is calling for enhanced military co-operation between the UK and France, saying greater defence collaboration with the European Union may be essential if the nation's armed forces are to operate on a reduced budget.

And I thought of this:

I have always thought that marine biology sounded like a pretty good career choice. 

Though fate took me elsewhere, this might explain why, while the RAN Sea Power Conference debated some big military-strategic questions, I skipped out for a period to attend a Maritime Advancement Award presentation by Dr Alison Jones of Central Queensland University, on the world-leading work she and her colleagues have just completed on marine refuges in the Great Barrier Reef.

Such research is clearly pertinent in Australia, by providing policy-makers with quality analysis on how best to husband biosystems crucial for tourism, professional fishing and recreational fishing. But it struck me as important at the international policy level because of the opportunity it creates to assist our Pacific and Southeast Asian neighbours in securing their marine resources. For them, maritime eco-sustainability is synonymous with economic survival.

At our first Wednesday Lowy Lunch event for the year this week, I spoke about the year ahead in the Pacific. On Fiji, I said it was important Australia had a relationship that allowed our Government to protect business and consular interests, mitigate damage to the region and maintain links so that Australia could enjoy a deeper relationship with Fiji in a post-Bainimarama environment.

But I cautioned that we should not expect that greater engagement or any normalisation of relations with Fiji now would lead to any change in behaviour from the Fiji Government. 

Disappointingly for Australia and our claims to regional leadership, it is highly unlikely that any policy tweaking or new engagement — even though worth doing for Australia's own interests — will induce Bainimarama to change course. Bainimarama announced just last week that any elected government after 2014 would do its work on the military's terms, thus signaling that any future government had to be approved by him or the military. 

Afterwards, I reflected on what was missing from the debate on what to do about Fiji. Why are Bainimarama and his colleagues winning the public relations campaign? Why are Australian and New Zealand policies being portrayed as harming an innocent Fiji? Why do supporters of the regime get more public attention than its critics? 

The Financial Times is one of the world's leading newspapers, so we have to assume they know their market. But do they realise how tone-deaf this headline — which just appeared in my email in-tray — would sound to anyone not working in the finance industry?:

Bankers try to fight off wave of controls at Davos

As Davos ends, bankers fight to fend off controls on sectors ranging from bonuses to proprietary trading and derivatives.

Sounds like they're really up against it. I'm imagining close-quarters combat around the ski lodges, with a plucky, misfit gang of bankers holding out against the technological might and superior numbers of the regulatory army.

Their leader is a gruff, cigar chomping derivatives trader with a heart of gold who has flashbacks about the '87 crash. He's in love with the sexy but angry young bond trader who's also in the group. She's brilliant but uncontrollable, and recently struck out own her own with a small firm after graduating. Her last name is 'Paulson' and she's rebelling against her dad.

Hang in there, you brave lads! Keep fighting the good fight!!

Just about everyone agrees that China has played a hugely positive role in keeping the world going through the GFC. In the process it has produced some extraordinary (and abnormal) economic statistics.

Credit has been growing at 30 per cent while the rest of the world was deleveraging. Government stimulus has amounted to 12-14 per cent of GDP (although this isn't all budget stimulus). Perhaps most amazing, investment is running at well over half of GDP. Despite a fall in exports of 30 per cent, GDP showed the briefest of slowing and has bounced back not far short of 10 per cent.

Economists, disciples of the dismal science, are agreed that this is unsustainable, although they disagree on just how it will come unstuck. Will the stimulus be too successful and create inflation (which has picked up already) and asset price bubbles? Alternatively, will the boost run out of steam and the economy fall in a hole? Will there be such over-investment that excess capacity will be ubiquitous and China will be criss-crossed by 'super-highways to nowhere'?

The Lowy Institute kicked off another year of Wednesday Lowy Lunches with a panel discussion about the year ahead. You can listen here to Lowy Institute research staff members Michael Fullilove (on US politics), Mark Thirlwell (on the word economy), and Jenny Hayward-Jones (on the Pacific).

I talked to Jenny later about what Australia and New Zealand are likely to do about Fiji this year, and about the big year ahead for PNG and the Solomon Islands.

Photo by Flickr user Andrewdp, used under a Creative Commons license.

• Walter Russell Mead says very kind things about the Lowy Institute in his reply to my post.
• High speed catamarans are a good news story for Australia's defence industry.
• The Council on Foreign Relations examines the China factor in what it calls a South East Asian 'arms spree'.
• An examination of 'cloud computing' and the promise of 'a new kind of global cultural commons'. (H/t 3QD.)
• The WSJ has an extract from Henry Paulson's book describing the 48 hours leading up to the collapse of Lehman Brothers.
• The Asia Foundation looks at the rule of law in Timor-Leste.
• Child custody cases could further test US-Japan relations.
• It's considered impolite in Washington to raise the notion of a G-2, writes William Overholt, yet '(i)n addressing the global financial crisis...China and the United States have had a strong partnership.'
• Alexander Downer's former Chief of Staff, Chris Kenny, wants Barack Obama to toughen up. 

The new Anwar Ibrahim trial — Sodomy II — is yet another demonstration of how the Mahathir effect permeates Malaysia's polity. In his two decades in power, Dr Mahathir changed every important institution. Not the least of his negative achievements was to subdue Malaysia's judiciary.

To try to understand what is happening in Malaysia today, you must factor in the many ways Mahathir transformed his country. And in seeking that perspective, a detailed new map is on offer. One of the great Australian journalists in Asia in recent decades, Barry Wain, has produced a masterful biography: 'Malaysian Maverick: Mahathir Mohamad in turbulent times'.

To follow the alliteration of its title, Malaysian Maverick is both meticulous and magisterial. This is journalism of the highest order.

Barry Wain was posted to Kuala Lumpur from 1977 to 1979 as staff correspondent for the Asian Wall Street Journal. Wain went on to be editor of the Journal and had managerial responsibilities for the coverage of Malaysia from 1984 to 1992. He is now writer-in-residence at the Institute of Southeast Asian Studies in Singapore.

As is customary in dealing with Dr M, the book has generated fireworks. It went on sale in Singapore on 4 December and has been in such demand it is in its third reprint. The Singapore sales have been helped by the Malaysian Home Ministry's refusal so far to pronounce the book suitable for sale in Malaysia. The freeze merely means that the Malaysian middle class makes a mental note to pick up a copy of The Maverick any time they are passing through Singapore. The blogosphere is doing the rest.

It's been hard to get any concrete information about China's aid program to Fiji since the military rulers took over in December 2006. The interim Government cooperated on the first paper I wrote on this, but apparently regretted doing so. To try and find out a little more, I convinced an amiable and bemused taxi driver from Suva to take me on a tour of a newly completed Chinese aid project — a new Friendship Bridge (pictured).

The bridge appears to be a pretty useful contribution and the nearby residents must be grateful for the 30 minutes it cuts off a commute to the other side of the river.

But what was more remarkable about the Chinese aid presence in Fiji was its modesty. For all the hype, including promises from the Chinese of a US$150 million soft loan, things have been pretty quiet. There is a large hydro-electric project going ahead, but so far the promised squatter resettlement project has failed to commence — apparently over a failure to reach agreement on quality issues and use of local labour (which the Chinese are resisting).

Major Gen (Retd) Jim Molan is author of Running the War in Iraq.

Andrew Davies, author of a recent ASPI paper on re-establishing contestability in Defence, may have lots of very good ideas. The re-establishment of internal contestability mechanisms that look like the long-disbanded Force Development and Analysis (FDA) staff division in Defence HQ is not one of his better ones. Neil James of the Australian Defence Association gives a good assessment of the idea in the ADA's Defence Brief No 140.

It would be hard to claim that there has been a marked decline in Defence efficacy between the periods when FDA had influence up to the late 1990s and then after its demise. There must, then, be other problems in Defence, so a simplistic advance into an FDA past may not be the answer.

Andrew quotes a 1987 RAND study about the cultures, values and priorities of the three US Services to explain what he thinks is the problem with Defence force structuring. He says the Service cultures are so strong and entrenched that a body outside these cultures is needed to contest their claims.

This morning I asked whether US intelligence agencies might be subtly using amateurs and enthusiasts to improve the Government's technical analysis of Russia's latest fighter jet. Now this afternoon, I read that 'crowdsourcing' is definitely on the Pentagon's agenda:

The Defense Advanced Research Projects Agency, or Darpa, just released its budget for the upcoming year. And, as you might expect from the Pentagon’s way-out science and technology division, there are some wild new projects on tap.

Military analysts are already overwhelmed by too much information. Instead of training more analysts or handing data over to computers, Darpa wants to improve how the military uses its intelligence info by turning it into an open call for contribution. The $13 million dollar project, called “Deep ISR Processing by Crowds,” looks “to harness the unique cognitive and creative abilities of large numbers of people to enhance dramatically the knowledge derived from ISR systems.”

 'ISR' refers to intelligence, surveillance and reconnaissance.

I've linked approvingly to a number of Walter Russell Mead's blog posts in recent months, notably yesterday to a piece he wrote about the 'death of global warming' (the movement, not the phenomenon). But in a follow-up post, Mead expands on that argument in a way that I think actually weakens it:

The international system isn’t capable of the kind of sweeping, rapid changes and decisions that activists seek. 200 years of human rights campaigns have not eliminated slavery. Nuclear proliferation continues despite more than sixty years of efforts to control it — and the consequences of nuclear war are much more horrible than those of global warming. Piracy, terrorism, tyranny, sexual discrimination: human beings live with many terrible problems that we have not solved. Environmental degradation is one of these problems. 

This strikes me as a bit thin. Sure, we live with terrible problems that haven't been solved, but we've also abolished or ameliorated a great many serious problems, and not a few of them because people and governments found ways to cooperate internationally. As an email correspondent put it to me, 'if we teleported back to Germany immediately after the Thirty Years War with news of what Bismarck would be up to a couple of centuries later – or with news of the emergence of the EU a century after that – we'd have encountered similar incredulity.'

I would add that the Montreal Protocol is a good recent example of successful international cooperation to solve a pressing environmental problem.

I'm certainly open to the idea that activists and governments have over-reached in this case, and that our global governance structures need reform to better cope with challenges like climate change. But to imply that international cooperation is a dead end until it can be shown to have abolished slavery, piracy, terrorism, tyranny and sexism is setting the bar rather high.

Last week's Sea Power 2010 Conference charted a course for Australia's amphibious forces, and the security environment in which they will operate. The impressive range of Australian and international speakers sparked quite a few insights, and reminded us of others. Some of the key takeaways I drew are below.

• Australia has an important maritime legacy, both civil and military. Our first military action as a lead nation was an amphibious operation, clearing Pacific German possessions in the very first months of the Great War.
• Projecting power and influence from the sea is as important as projecting power and influence at sea. Sea power is in part about the projection of power and influence within the littoral environment, where the land and sea environments meet — the littoral extends into each environment as far as force and influence can be projected from the other. Importantly, the littoral is influenced by other domains – not just air, but increasingly, space and cyberspace. Success in the littoral environment demands capabilities working in a symbiotic relationship in each of these domains.

A couple of weeks back I suggested that exchange rates were going to be a big policy theme this year. In a piece for the FT a few days ago, Gillian Tett makes a similar point in the context of the recently concluded annual Davos beanfest, predicting that by the time of the 2011 gathering, 'the next big bogeyman may be exchange rates'.

In my January post I listed a few examples of policy challenges linked to exchange rates, but an important one that I didn't include was the carry trade, which is also exercising policymakers' minds this year.

My colleague Steve Grenville has an interesting new paper on our website which looks at some of these issues. Steve argues that the GFC will leave a legacy of substantial interest differentials between the slow-growing crisis countries and the emerging markets. This is likely to attract big short-term volatile capital flows which will push up exchange rates and leave these countries vulnerable to sudden outflows. He proposes that these countries should explore ways of discouraging these short-term inflows, and in doing this should have the backing of the IMF.

Photo by Flickr user carioca_san, used under a Creative Commons license.