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US's Portfolio Problem

Author: Richard N. Haass, President, Council on Foreign Relations
January 17, 2007
Financial Times


The end of one calendar year and the beginning of the new one is the ideal time to assess and rebalance one’s portfolio. The goal is to make sure that financial commitments continue to reflect the appropriate amount of risk and diversity given the changes brought about by past performance and new circumstances. Inevitably some positions require reduction, others deserve addition and still others are initiated.

This is true when it comes to investment; it is no less true in the realm of foreign policy.

The US offers a telling case in point. The Bush administration made an enormous foreign policy investment in Iraq. Nearly four years later, things have not worked out as envisioned. To the contrary, the intervention has proved far more costly in terms of lives, matériel and wealth than anticipated by the president and his inner circle. Meanwhile, the positive returns have been few and pale in comparison to the costs.

So what to do? One approach to portfolio rebalancing would call for the US to sell its position—ie to withdraw from Iraq. This is a course that is being urged on the president by a minority in Congress and a growing number of Americans who are fed up with what has happened and who have given up on the idea that the situation could improve.

In the investment world, however, such behaviour is discouraged, as selling a battered position yields little. The same holds in this instance in the strategic world.

Leaving Iraq quickly—“precipitate withdrawal” in the jargon of the Iraq Study Group—would create a humanitarian disaster and a terrorist safe haven, and set the stage not just for a more intense civil war but for a regional conflict that could destabilise much of the oil-rich Middle East. It would also raise questions—every where about American reliability and staying power. Rebalancing in this fashion would actually make a bad situation even worse.

President George W. Bush has correctly rejected this course of action. Instead, he has elected to do just the opposite. He is doing precisely what many investors do when things go wrong, namely, raising their commitment. This is the logic of Mr Bush’s decision to increase US troop levels in Iraq by more than 20,000 for several months.

This is anything but rebalancing. It actually increases the degree to which Iraq dominates US foreign policy. For the foreseeable future Iraq will absorb even more financial and military resources, lead to high casualties and require even more time from policymakers. Expanding the war to Iran and Syria, something the president warned he might do, would distort US foreign policy even more.

The problem with the troop surge decision is twofold. History gives little reason to be confident that increasing the American commitment to Iraq in this way and at this time will pay off. If the Iraqi government is prepared to implement genuine political and economic reforms and take on all armed groups who are using force to advance their agenda, then a surge in US troops will not be needed. If the Iraqi government is not prepared to act in a truly national spirit, then the surge in US troops will not be enough.

There is good reason to believe that Iraq’s government will continue to be more sectarian than national. If so, domestic political pressures would grow exponentially in the US to leave Iraq and “sell” the US position there in spite of the strategic costs of so doing.

The increased focus on Iraq also limits the ability of the US to focus on other matters, be they threats or opportunities. There are only so many troops, dollars and hours in the day to go round.

For this reason the US would be far wiser to rebalance its foreign policy portfolio. This would entail two complementary approaches. The first involves Iraq. The US needs to limit its investment and above all its military involvement in that country. This argues for gradually reducing the number of American troops and shifting them away from direct involvement in the civil strife that dominates the country’s centre. This approach would still give the Iraqi government the support it needs to improve matters if it was in fact prepared to do so and partially shield the US from the argument that it had walked away from a commitment. It would not solve the Iraq conundrum, but it is far from apparent that a solution exists regardless of what the US does.

Second, a gradual reduction in the American investment in Iraq would free up the US to invest in other areas—ie to diversify. Washington could do more to deal with the nuclear challenges posed by both North Korea and Iran; promote a dialogue between Israel and Syria and Israel and the Palestinians; tackle global climate change; jumpstart stagnant trade talks; and stop genocide in Darfur. The opportunities are unlimited; the resources are not. Only a rebalanced portfolio, one that reduces the hold Iraq has on US foreign policy, offers hope that Mr Bush will hand off a world in better shape than we now find it.

This article appears in full on CFR.org by permission of its original publisher. It was originally available here (Subscription required).

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