Medha Patkar is a social activist who has led the struggle for the people affected by the controversial Sardar Sarovar Project on the Narmada river in Gujarat, India. She founded the Narmada Bachoao Andolan and National Alliance of People’s movements and is recipient of numerous awards including the Goldman Environmental Prize, Amnesty International’s Human Rights Defender’s Award and the BBC’s Green Ribbon Award.

http://www.youtube.com/watch?hl=ru&v=rvDG__6xjGQ

USUBC NOTE: The “Ukraine – Macroeconomic Situation – January 2011″ analytical report prepared by the SigmaBleyzer Emerging Markets Private Equity Investment Management Group and The Bleyzer Foundation (TBF), Kyiv, Ukraine, members of the U.S.-Ukraine Business Council (USUBC), http://www.USUBC.org, is found below.

SUMMARY POINTS

(1) Real GDP is estimated to have grown by 4.2% yoy in 2010 and is projected to increase by about 4% yoy in 2011.

(2) The broad fiscal deficit (including Naftogaz and Pension Fund) may have been higher than the targeted and IMF-required 6.5% of GDP.

(3) Although the 2011 state budget law was approved targeting 3.1% of GDP, reducing the broad fiscal deficit to 3.5% of GDP will be very challenging.

(4) Consumer inflation declined to 9.1% yoy in 2010, the lowest level in 6 years; however, it is forecast to accelerate to about 12% yoy in 2011.

(5) The current account deficit widened to 1.9% of GDP in 2010, but the financial account remained in large surplus thanks to a high external debt roll-over ratio.

(6) In 2011, the Hryvnia is projected to depreciate to about UAH 8.5 per USD.

EXECUTIVE SUMMARY

In 2010, the Ukrainian economy recovered at about 4.2% yoy from a 14.8% yoy crisis-induced decline in 2009. The recovery was led by exports, private consumption (which surprised on the upside) and strong inventory rebuild. Additionally, the recovery was broad-based among sectors with only construction and agriculture reporting small declines.

A 1% decline in agricultural output was registered on a high relative base, as the 2010 grain harvest was 9% higher than average for the last 20 years. The economy is forecast to make further gains in 2011, though at a slower pace. Some deceleration to about 4% yoy in 2011 will come as a result of slower growth in private and government consumption, principally due to notable fiscal tightening.

Although official data on 2010 full-year budget execution is scarce, other government sources indicated that though the state and local budget deficit may have been close to the planned amount, Naftogaz and Pension Fund deficit targets were missed. The broad fiscal deficit is estimated to have reached 7.2% of GDP, above the IMF target of 6.5% of GDP. The higher fiscal deficit was mainly the result of below-target revenue growth as well as some delays in implementing fiscal consolidation measures.

Given the under-fulfillment of budget revenues in 2010, enforcement of tax reform and politically painful measures to be implemented in 2011, successful execution of this year’s budget looks very challenging and may require additional retrenching of government expenditures. Though some delays are possible, we believe the government will generally follow the IMF requirements given that continuation of the program pays a substantial confidence building role for the Ukrainian economy.

To a large extent thanks the presence of the IMF program, Ukraine enjoyed an impressive 109% external debt roll-over ratio in 2010, which allowed them to successfully service foreign debt and augment NBU gross international reserves to $34.5 billion. At the same time, external debt service payments are projected to stay high during this and the next few years. Hence, the country needs to keep foreign investors’ confidence high to secure its fragile external position.

At the same time, Ukraine is unlikely to attain similar to 2010 debt rollover ratios in the future. Forecast acceleration of consumer inflation to about 12% in 2011, much higher than in Ukraine’s main trading partner countries, will also pressure the Hryvnia to depreciate. Assuming also the NBU’s gradual shift towards a more flexible exchange rate regime, the Hryvnia is projected at about UAH 8.5 per USD at the end of 2011.

ECONOMIC GROWTH

Economic data showed the Ukrainian economy made further gains at the end of 2010. Industrial production rose by 12.5% in December 2010 compared with December 2009. December’s expansion in industrial output was primarily led by export-oriented metallurgy, chemicals and machinery as well as energy production.

Although world steel prices weakened in December, Ukraine’s metallurgical industry has risen by 12% yoy, further up from 10.9% yoy a month before. The increase in production may be explained by good prospects for the industry in the near term amid an anticipated further rise in world steel prices, pressured upwards by surging iron ore prices, and projected strengthening of external demand (due to robust growth in Asia, Africa and Russia).

Machine-building finished the year on a strong note, with output up by almost 39% yoy in December and 34.5% yoy for the whole year. The expansion was mostly export-led, as the industry benefited from a rebound in investment demand in Russia, the main export market for Ukraine’s heavy machinery, and exploration of new markets (such as the Czech Republic, a joint project with which boosted Ukraine’s production of public transportation vehicles).

Growing world demand for food products amid supply shortages due to export restrictions in several key exporting countries (i.e., Russia, Ukraine) stimulated demand for fertilizers. As a result, Ukraine’s chemical industry gained 33% yoy in December 2010 and 21.5% yoy for the whole year.

Recovering economic activity and volatile weather (with extreme temperatures in summer and at the beginning of December) underpinned a 9.5% yoy increase in production of electricity, gas and water in 2010.

Strong rebound in private consumption since the second quarter of 2010 (primarily on account of an almost 10% real wage increase in 2010) as well as more expensive imports supported domestic food processing and light industries. Production in these industries was up by about 3% yoy and 8% yoy in 2010, respectively. As a result, the full-year advance in total industrial production stood at a solid 11% yoy.

Favored by buoyant growth in industry and exports, wholesale trade and cargo transportation turnover grew by 0.4% yoy and 6.4% yoy respectively. At the same time, the pace of growth in these sectors has notably weakened in the second half of the year, first due to a slowdown in international trade during the summer months, then as a result of grain export restrictions.

Although Ukraine collected an above-average grain harvest in 2010, the latter was introduced to contain domestic inflation pressured by surging world food prices. According to final data, Ukraine harvested 39.2 million tons of grain in 2010, still 9% higher than average for the last 20 years.

In relative terms, however, gross crop production (including sunflower seeds, sugar beets, etc.) fell by almost 5% yoy in 2010 as the 2009 harvest was the third largest on record. At the same time, thanks to a 4.5% increase in animal breeding, the agricultural sector reported a 1% yoy decline in output.

With better budget financing of infrastructure projects and some revival of credit activity, construction sector performance notably improved in the second half of the year. Still, for the whole year, the volume of construction works was 5.4% lower than in the previous year. In contrast, retail trade turnover recovered at an encouraging 7.6% yoy in 2010. Given sector development, real GDP is estimated to have grown by 4.2% yoy in 2010.

Looking ahead, economic growth in Ukraine is projected to moderate to about 4% yoy in 2011, according to our revised forecast. While the growth outlook for Ukraine’s main export-destination countries and prospects for world commodity prices (steel, fertilizers, etc.) are favorable, other sources of growth are likely to weaken.

Indeed, private consumption will continue recovering in 2011, benefiting from better economic and political stability. At the same time, due to slower real wage growth, higher utility costs and excise taxes as well as still subdued credit activity (particularly retail credit), private consumption growth will lose momentum.

Committed to reducing the general fiscal deficit to 3.5% of GDP in 2010, down from about 7.2% of GDP in 2010 (according to preliminary data), the government will have to notably tighten expenditures.

On the upside, the growth will be supported by a forecast strong rebound in fixed investment related to Euro 2012 football championship infrastructure projects. However, as the inventory rebuild cycle, impressive in 2010, is likely to fade this year and credit activity will remain weak, the net impact on economic growth may be mixed.

In addition, continuing recovery in private consumption (though at a slower pace) and buoyant investment demand will keep imports high. The speed of structural reforms may be on both risk sides for the current forecast. At the end of 2010, the government began or announced a number of reform measures, such as public administration, pension, tax reforms, and anti-corruption efforts. At the same time, the reform progress is very uncertain.

Given the election-free year, 2011 may become a year of major economic reforms in the country. However, many of them (such as pension reform, utility sector reform, etc.) are politically painful.

As of the beginning of the year, available information indicates reform progress is likely to be moderate this year (the pension reform measures, expected to have been announced and approved at the end of 2010, are still pending; there is little information on anti-corruption strategy; it is unclear whether the government will initiate comprehensive public administration reform with functional and operational reviews, public service reform, etc.).

FISCAL POLICY

After the sharp crisis-related deterioration in 2009, restoring public finances and debt on a sustainable path is one of the main macroeconomic challenges for Ukraine in the medium term. While the presence of the IMF program, secured in mid-2010, played a substantial confidence building role for the Ukrainian economy, public finances were under strain in 2010 and are likely to remain challenging in 2011.

Effective fiscal consolidation measures to meet the targeted 3.5% of GDP for a broad fiscal deficit in 2011 are currently the main uncertainty in the country as many of these measures are politically sensitive to implement.

At the end of December 2010, the 2011 state budget law was approved based on new tax rules with a deficit target of 3.1% of GDP, fully in compliance with IMF requirements. The impact of the new Tax Code, which took effect at the beginning of this year, on budget revenues is expected to be rather neutral.

The likely revenue shortfalls due to a 2 percentage point reduction in the corporate profit tax rate to 23% since April 1st, 2011 and new tax breaks [1] are expected to be largely offset by a rise in excises on alcohol, tobacco and gasoline, higher oil and natural gas rent payments and notable narrowing of the simplified taxation system. Following massive entrepreneur protests, the main provisions of the simplified taxation system were preserved.

However, the final version of the new Tax Code contained an important revision, which will substantially limit the scope of the system. In particular, the costs of goods and services (except IT) acquired from private entrepreneurs on a simplified taxation system will be non-deductible for companies on a general taxation system. In addition, the government is going to revise the system rules again this spring.

At the same time, budget revenue growth is likely to be constrained in 2011 as the economy may require some time to adjust to new tax rules. As a result, the government projected fiscal revenues to increase by a moderate 11.4% yoy in nominal terms to UAH 281.5 billion ($35.2 billion) in 2011.

Correspondingly, to meet the deficit target the government concentrated on fiscal austerity measures. State budget expenditures are set to increase by about 4% yoy in nominal terms.

Such a modest increase will be achieved by containing social spending (e.g., average wage is projected to increase by about 4% yoy in real terms, down from 10% yoy in 2010), implementing public reform measures (the first stage, which began at the end of 2010, envisages an about 30% reduction in the size of government apparatus), further efforts to rebalance Naftogaz Ukrainy.

The latter will include a rise in natural gas tariffs to population by another 50% in April 2011 and faster pass-through of higher energy prices on final consumers. Announced pension reform measures (such as introduction of a cap on pension benefits and gradual increase in pension age for women) will also help to contain the growth of budget expenditures, though the full impact will be felt in the medium term.

While the package of the austerity measures signals a strong government commitment to bringing the budget deficit under control, which is necessary to maintain Ukraine’s international credibility, it may be very challenging for the government to meet the target in 2011.

The target looks quite ambitious given that the 2010 broad fiscal deficit was likely above the targeted 6.5% of GDP. Although full details are still not available, preliminary data showed the state and local budgets deficit may have stood very close to the target.

Thus, state budget revenues amounted to UAH 240.5 billion ($30 billion), or 5.7% lower than budgeted. Below target proceeds were achieved despite overall realistic macroeconomic assumptions: higher economic growth (4.2% yoy versus 3.7% projected in the budget) compensated for lower inflation (9.1% yoy versus 13.1% yoy projected in the budget).

Underestimation of the amount of taxes paid in advance in 2009, generally slower fiscal recovery than overall economic activity [2], as well as legal loopholes allowing for tax avoidance [3] were likely the main reasons of budget revenue shortfalls in 2010. At the same time, the government authorities likely strictly controlled expenditures at the end of the year to meet the targets.

However, government sources have indicated that Naftogaz and Pension fund of Ukraine ended the year with higher than planned deficits. As a result, broad fiscal deficit may have amounted to 7.2% of GDP in 2010.

Given that actual budget revenues were under-fulfilled in 2010, there is a risk that the 2011 budget revenue target may also be over-estimated. In addition to the above mentioned reasons, the risk of below-target execution may stem from the fact that the government is strongly counting on the de-shadowing of the Ukrainian economy following the approval of the new Tax Code.

Although the new Code streamlines tax legislation, reduces corporate profit tax and provides for tax exemptions, the desired de-shadowing still may not be realized. For it to happen, notable progress in tax administration reform is needed as the cumbersome, non-transparent and time-consuming process of paying taxes rather than high taxes per se is causing the most complaints from the business community.

However, to secure more revenues to the budget at the end of the year, tax authorities increased administrative pressure on business. Coupled with stricter tax administration rules envisaged in the new Tax Code, this may stimulate tax evasion.

Hence, additional government retrenchment measures to meet the 2011 budget deficit target are likely to be the main issue of discussions with the IMF this February, when the mission comes to complete the second review under the SBA to Ukraine. The negotiations are likely to be tough as many fiscal tightening measures are politically painful. However, if secured, Ukraine may become one of the most successful countries performing fiscal consolidation.

MONETARY POLICY

Ukraine ended 2010 with consumer inflation at 9.1% yoy, the lowest rate for the last six years. While the progress in reducing inflation was broadly anticipated, the year-end inflation was much lower than expected. This was mainly because monthly consumer price growth rates during the last quarter of the year were the lowest on record since 1996.

Despite significant pressure from surging international food prices and higher energy prices, consumer prices grew by only 1.6% from October to December, mainly on account of unusual fruit and vegetable deflation in October-November (attributed to government administrative measures) and a delay in utility tariffs adjustment after a 50% increase in natural gas tariffs to utility companies.

In 2011, inflation is projected to accelerate to about 12%, prompted by scheduled another 50% rise in natural gas tariffs since April 2011, faster pass-through of higher energy prices to utility tariffs (heating, hot water, and electricity), higher excises on gasoline and elevated world energy prices. Higher utility and transportation costs will eventually be transmitted to food prices and the cost of other consumer goods and services.

In 2010, the impact of money supply growth on consumer price inflation was rather weak. The monetary base expanded by 15.8% yoy in 2010, very close to the IMF target of 15.4% yoy. The pace of monetary base growth notably moderated during the last three months of the year, which may be attributed to the NBU resuming foreign currency interventions on the interbank market since September 2010 and measures to tighten banking sector liquidity.

Thus, cash balances on commercial banks correspondent accounts declined by about 16% from September to the end of the year. Surging imports amid slower export growth and high population demand for foreign currency pressured the Hryvnia exchange rate to depreciate.

To support the Hryvnia exchange rate, the NBU spent $2.2 billion on a net basis during the last four months of the year. As a result, the Hryvnia marginally depreciated from UAH 7.89 per USD at the end of August to UAH 7.96 per USD at year end. Moderation of monetary base growth and still weak bank credit activity allowed containing money supply growth at about 22.5% yoy in the last four months of 2010.

Credit activity remained weak throughout 2010, with signs of revival observed in the second half of the year. Although banking system liquidity notably improved (bank deposits grew by a solid 26.3% yoy, the NBU restructured crisis-induced refinancing loans to a number of banks, lowered its discount rate by 2.5 percentage points to 7.75% pa, etc.), commercial banks stayed reluctant to resume credit activity.

The stock of bank credit grew by a modest 1% yoy in 2010. High credit risks and a high share of non-performing loans (NPLs) undermined bank credit and profits. The share of NPLs, broadly defined (including substandard loans) was estimated at about 40-45% in 2010.

With the continuing shift in the NBU financial sector policies from containing the deterioration in the banking sector towards restoring bank credit supply (through simplification of NPLs resolution process, introduction of better risk management practices and liquidity support), credit growth is forecast to increase in 2011, though very gradually as the above-mentioned measures will take time to be implemented.

However, as the credit growth still will be stronger than in the previous year, so will the money supply growth, contributing to the acceleration in inflation in 2011.

INTERNATIONAL TRADE AND CAPITAL

Stronger than expected world economic growth in 2010 and favorable international prices for Ukraine’s traditional export commodities (steel, iron ore, fertilizers, agricultural products) were supportive to Ukraine’s exports of goods, which grew by a robust 29% yoy in $ terms, according to preliminary data.

Export of metallurgical products (+35% yoy) traditionally was the largest contributor to total merchandise export growth, followed by mineral products (+80% yoy), locomotives and other transport vehicles (+110% yoy) and chemicals (+33% yoy).

Due to introduction of grain export restrictions, export of agricultural products grew by a modest 4.4% yoy in 2010, while total export growth notably decelerated in the second half of the year. In contrast, imports rebounded strongly since the second quarter of the year, spurred by recovered consumer demand as well as elevated world energy prices.

As the growth of imports (+35.5% yoy) outpaced exports, the trade deficit in goods widened to $8.4 billion in 2010, almost twice as high as in 2009. Although a higher trade surplus in services and workers’ remittances partially compensated for that deterioration, the current account balance ended with a larger deficit of $2.6 billion, or 1.9% of estimated full-year GDP.

In 2011, despite a generally favorable outlook for Ukraine’s exports, the current account gap is projected to further increase to 2.5% of GDP as stronger investment demand and higher energy prices will keep the growth of imports above exports.

Despite widening, the current account deficit is not a cause of concern as it was and will be securely covered by FDI ($5.7 billion in 2010 and about $7 billion forecast in 2011). At the same time, Ukraine’s external position remains fragile due to high external debt service needs. In 2010, Ukraine enjoyed a very high external debt roll-over ratio (109%), considerably above expectations.

To a notable extent, this level was achieved thanks to resumption of cooperation with the IMF, which not only provided Ukraine with still scarce foreign financing but also helped to maintain investor confidence. This allowed Ukraine to augment its gross international reserves to $34.6 billion at the end of 2010, up from $26.5 billion in 2009. In the current and next few years, external debt service payments are projected to stay high as Ukraine is no longer a low-debt country.

Gross external debt (public and private) stood at $111.5 billion as of September 2010, about $43.5 billion of which is due within one year. Hence, the continuation of the IMF program will remain key to securing debt roll-over at high levels. At the same time, Ukraine is unlikely to enjoy debt rollover ratios similar to 2010 in the future.

In addition, inflation will remain much higher than in its main trading partner countries, causing the gradual loss in competitiveness, restored during the crisis years. Assuming also the NBU gradual shift towards a more flexible exchange rate regime, the Hryvnia is projected to moderately depreciate to UAH 8.5 per USD by the end of 2011.

FOOTNOTES

[1] Hotels, shipbuilders, light industry, aircraft and agricultural machinery producers are exempt from corporate profit tax for 10 years; a 0% corporate tax rate will be applied to small businesses with annual turnover less than UAH 3 million ($0.4 million) for 5 years starting April 1, 2011; a 0% VAT rate is set for agricultural and wood producers and exporters.

[2] Typically employment and recovery in corporate revenues lag behind economic revival.

[3] Using loopholes in the Ukrainian legislation, at the end of May 2010 Livella company, a subsidiary of a joint company with foreign direct investments, won a court decision allowing it to import crude oil and gasoline products without paying excises and VAT. According to various estimates, the company gained about 60% share of all crude oil and gasoline imports to Ukraine since August 2010, when it actively started its operations.

Analytical Report: by Olga Pogarska, Edilberto L. Segura

SigmaBleyzer Emerging Markets Private Equity Investment Group

http://www.unian.net/eng/news/news-422835.html

The New York Times, March 1, 2011

One of the proudest items on the wall of the U.S. ambassador’s office in Kiev from 2006-2009 was a world map showing the Freedom House ranking of free, not free and partly free countries around the world. Visitors could clearly see that Ukraine ranked as the only free country among the post-Soviet states.

Today, however, the Freedom House map shows Ukraine as only partly free. President Viktor Yanukovich, concluding his first year in office, should carefully consider what this means for his oft-expressed goal of integrating his country into Europe.

Ukraine has held a half dozen parliamentary, presidential and nationwide local elections since the Orange Revolution in late 2004. International observers judged all to be generally free and fair — that is, until the October 2010 election, the first conducted under the Yanukovich administration. President Yanukovich made some last-minute attempts to fix the election law, but the ballot fell short of the standard set by previous elections and was widely condemned as flawed.

Another troubling sign is the apparent effort by prosecutors to target officials from the previous government of former Prime Minister Yulia Tymoshenko. Her minister of the interior, Yuri Lutsenko, sits in jail awaiting trial. Her minister of economy, Bohdan Danylyshyn, was granted political asylum by the Czech Republic — a friendly country that wants to see Ukraine succeed — on the assumption that he would be unfairly prosecuted by a corrupt, politically-driven judiciary in Ukraine. The former prime minister, still a formidable politician, is being questioned extensively by the prosecutor-general and banned from international travel.

At a Feb. 14 public talk in Washington, Foreign Minister Kostyantyn Gryshchenko offered an eloquent defense of Ukraine’s recent record on democratic practices. To his credit, he also engaged with Freedom House the next day on the question.

The truth likely lies somewhere between the picture drawn by Ukrainian diplomats and that drawn by President Yanukovich’s domestic critics. But the fact that the foreign minister felt he had to focus his comments on Ukraine’s domestic political scene is a reflection of the impression in Europe and the United States that Ukraine has turned away from European-style democracy.

This carries significant implications for Kiev’s foreign policy. Ukraine under its previous president, Viktor Yushchenko, and under President Yanukovich has sought to integrate fully into Europe, including someday joining the European Union. Ukraine certainly ought to have the chance. Reaching that goal, however, means reforming the economy, restructuring laws, and raising standards to meet E.U. requirements.

While all understood that the process was sure to be long, the effort was seen to be worthwhile and achievable, with time and determination. The U.S. government fully supported this effort. Developments in Ukraine, however, cause Europeans and others to question Ukraine’s commitment to broadly-accepted European norms of political behavior.

If President Yanukovich is committed to European integration and E.U. membership, his administration’s domestic actions make achieving that goal much tougher. The European Union has turned its focus to internal issues and shows little enthusiasm for integrating neighboring states. To the extent that Europeans see Kiev adopting a more autocratic model of government, it will be that much easier for them to ignore Ukraine’s desire to integrate.

So President Yanukovich faces a choice. He can continue, or allow the continuation of, current domestic policies and watch his chances of integrating Ukraine into Europe fade. Or he can strengthen democratic institutions — which, by the way, resulted in his own election last year — and restore positive momentum to the relationship between Ukraine and Europe.

For its part, the West can help crystallize this choice. European and American officials should make clear to the president — in plain terms, so that nuance is not misread — that the policies of his administration look like democratic backsliding. They should make equally clear that continuing this course will disappoint Ukraine’s well-wishers around the world and produce a growing divide between Ukraine and Europe.

Steven Pifer, a senior fellow at the Brookings Institution, and William Taylor, a senior vice president at the U.S. Institute of Peace, served as the third and sixth U.S. ambassadors to Ukraine.

By STEVEN PIFER and WILLIAM TAYLOR, The New York Times

http://www.unian.net/eng/news/news-423955.html

-Dave, stop. Stop, will you? Stop, Dave. Will you stop, Dave?” So the supercomputer HAL pleads with the implacable astronaut Dave Bowman in a famous and weirdly poignant scene toward the end of Stanley Kubrick’s 2001: A Space Odyssey. Bowman, having nearly been sent to a deep-space death by the malfunctioning machine, is calmly, coldly disconnecting the memory circuits that control its artificial “ brain. “Dave, my mind is going,” HAL says, forlornly. “I can feel it. I can feel it.”

I can feel it, too. Over the past few years I’ve had an uncomfortable sense that someone, or something, has been tinkering with my brain, remapping the neural circuitry, reprogramming the memory. My mind isn’t going—so far as I can tell—but it’s changing. I’m not thinking the way I used to think. I can feel it most strongly when I’m reading. Immersing myself in a book or a lengthy article used to be easy. My mind would get caught up in the narrative or the turns of the argument, and I’d spend hours strolling through long stretches of prose. That’s rarely the case anymore. Now my concentration often starts to drift after two or three pages. I get fidgety, lose the thread, begin looking for something else to do. I feel as if I’m always dragging my wayward brain back to the text. The deep reading that used to come naturally has become a struggle.

I think I know what’s going on. For more than a decade now, I’ve been spending a lot of time online, searching and surfing and sometimes adding to the great databases of the Internet. The Web has been a godsend to me as a writer. Research that once required days in the stacks or periodical rooms of libraries can now be done in minutes. A few Google searches, some quick clicks on hyperlinks, and I’ve got the telltale fact or pithy quote I was after. Even when I’m not working, I’m as likely as not to be foraging in the Web’s info-thickets’reading and writing e-mails, scanning headlines and blog posts, watching videos and listening to podcasts, or just tripping from link to link to link. (Unlike footnotes, to which they’re sometimes likened, hyperlinks don’t merely point to related works; they propel you toward them.)

For me, as for others, the Net is becoming a universal medium, the conduit for most of the information that flows through my eyes and ears and into my mind. The advantages of having immediate access to such an incredibly rich store of information are many, and they’ve been widely described and duly applauded. “The perfect recall of silicon memory,” Wired’s Clive Thompson has written, “can be an enormous boon to thinking.” But that boon comes at a price. As the media theorist Marshall McLuhan pointed out in the 1960s, media are not just passive channels of information. They supply the stuff of thought, but they also shape the process of thought. And what the Net seems to be doing is chipping away my capacity for concentration and contemplation. My mind now expects to take in information the way the Net distributes it: in a swiftly moving stream of particles. Once I was a scuba diver in the sea of words. Now I zip along the surface like a guy on a Jet Ski.

I’m not the only one. When I mention my troubles with reading to friends and acquaintances—literary types, most of them—many say they’re having similar experiences. The more they use the Web, the more they have to fight to stay focused on long pieces of writing. Some of the bloggers I follow have also begun mentioning the phenomenon. Scott Karp, who writes a blog about online media, recently confessed that he has stopped reading books altogether. “I was a lit major in college, and used to be [a] voracious book reader,” he wrote. “What happened?” He speculates on the answer: “What if I do all my reading on the web not so much because the way I read has changed, i.e. I’m just seeking convenience, but because the way I THINK has changed?”

Bruce Friedman, who blogs regularly about the use of computers in medicine, also has described how the Internet has altered his mental habits. “I now have almost totally lost the ability to read and absorb a longish article on the web or in print,” he wrote earlier this year. A pathologist who has long been on the faculty of the University of Michigan Medical School, Friedman elaborated on his comment in a telephone conversation with me. His thinking, he said, has taken on a “staccato” quality, reflecting the way he quickly scans short passages of text from many sources online. “I can’t read War and Peace anymore,” he admitted. “I’ve lost the ability to do that. Even a blog post of more than three or four paragraphs is too much to absorb. I skim it.”

Anecdotes alone don’t prove much. And we still await the long-term neurological and psychological experiments that will provide a definitive picture of how Internet use affects cognition. But a recently published study of online research habits , conducted by scholars from University College London, suggests that we may well be in the midst of a sea change in the way we read and think. As part of the five-year research program, the scholars examined computer logs documenting the behavior of visitors to two popular research sites, one operated by the British Library and one by a U.K. educational consortium, that provide access to journal articles, e-books, and other sources of written information. They found that people using the sites exhibited “a form of skimming activity,” hopping from one source to another and rarely returning to any source they’d already visited. They typically read no more than one or two pages of an article or book before they would “bounce” out to another site. Sometimes they’d save a long article, but there’s no evidence that they ever went back and actually read it. The authors of the study report:

It is clear that users are not reading online in the traditional sense; indeed there are signs that new forms of “reading” are emerging as users “power browse” horizontally through titles, contents pages and abstracts going for quick wins. It almost seems that they go online to avoid reading in the traditional sense.

Thanks to the ubiquity of text on the Internet, not to mention the popularity of text-messaging on cell phones, we may well be reading more today than we did in the 1970s or 1980s, when television was our medium of choice. But it’s a different kind of reading, and behind it lies a different kind of thinking—perhaps even a new sense of the self. “We are not only what we read,” says Maryanne Wolf, a developmental psychologist at Tufts University and the author of Proust and the Squid: The Story and Science of the Reading Brain. “We are how we read.” Wolf worries that the style of reading promoted by the Net, a style that puts “efficiency” and “immediacy” above all else, may be weakening our capacity for the kind of deep reading that emerged when an earlier technology, the printing press, made long and complex works of prose commonplace. When we read online, she says, we tend to become “mere decoders of information.” Our ability to interpret text, to make the rich mental connections that form when we read deeply and without distraction, remains largely disengaged.

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Reading, explains Wolf, is not an instinctive skill for human beings. It’s not etched into our genes the way speech is. We have to teach our minds how to translate the symbolic characters we see into the language we understand. And the media or other technologies we use in learning and practicing the craft of reading play an important part in shaping the neural circuits inside our brains. Experiments demonstrate that readers of ideograms, such as the Chinese, develop a mental circuitry for reading that is very different from the circuitry found in those of us whose written language employs an alphabet. The variations extend across many regions of the brain, including those that govern such essential cognitive functions as memory and the interpretation of visual and auditory stimuli. We can expect as well that the circuits woven by our use of the Net will be different from those woven by our reading of books and other printed works.

Sometime in 1882, Friedrich Nietzsche bought a typewriter—a Malling-Hansen Writing Ball, to be precise. His vision was failing, and keeping his eyes focused on a page had become exhausting and painful, often bringing on crushing headaches. He had been forced to curtail his writing, and he feared that he would soon have to give it up. The typewriter rescued him, at least for a time. Once he had mastered touch-typing, he was able to write with his eyes closed, using only the tips of his fingers. Words could once again flow from his mind to the page.

But the machine had a subtler effect on his work. One of Nietzsche’s friends, a composer, noticed a change in the style of his writing. His already terse prose had become even tighter, more telegraphic. “Perhaps you will through this instrument even take to a new idiom,” the friend wrote in a letter, noting that, in his own work, his “‘thoughts’ in music and language often depend on the quality of pen and paper.”

Also see:

Living With a Computer (July 1982)

“The process works this way. When I sit down to write a letter or start the first draft of an article, I simply type on the keyboard and the words appear on the screen…” By James Fallows

“You are right,” Nietzsche replied, “our writing equipment takes part in the forming of our thoughts.” Under the sway of the machine, writes the German media scholar Friedrich A. Kittler , Nietzsche’s prose “changed from arguments to aphorisms, from thoughts to puns, from rhetoric to telegram style.”

The human brain is almost infinitely malleable. People used to think that our mental meshwork, the dense connections formed among the 100 billion or so neurons inside our skulls, was largely fixed by the time we reached adulthood. But brain researchers have discovered that that’s not the case. James Olds, a professor of neuroscience who directs the Krasnow Institute for Advanced Study at George Mason University, says that even the adult mind “is very plastic.” Nerve cells routinely break old connections and form new ones. “The brain,” according to Olds, “has the ability to reprogram itself on the fly, altering the way it functions.”

As we use what the sociologist Daniel Bell has called our “intellectual technologies”—the tools that extend our mental rather than our physical capacities—we inevitably begin to take on the qualities of those technologies. The mechanical clock, which came into common use in the 14th century, provides a compelling example. In Technics and Civilization, the historian and cultural critic Lewis Mumford described how the clock “disassociated time from human events and helped create the belief in an independent world of mathematically measurable sequences.” The “abstract framework of divided time” became “the point of reference for both action and thought.”

The clock’s methodical ticking helped bring into being the scientific mind and the scientific man. But it also took something away. As the late MIT computer scientist Joseph Weizenbaum observed in his 1976 book, Computer Power and Human Reason: From Judgment to Calculation, the conception of the world that emerged from the widespread use of timekeeping instruments “remains an impoverished version of the older one, for it rests on a rejection of those direct experiences that formed the basis for, and indeed constituted, the old reality.” In deciding when to eat, to work, to sleep, to rise, we stopped listening to our senses and started obeying the clock.

The process of adapting to new intellectual technologies is reflected in the changing metaphors we use to explain ourselves to ourselves. When the mechanical clock arrived, people began thinking of their brains as operating “like clockwork.” Today, in the age of software, we have come to think of them as operating “like computers.” But the changes, neuroscience tells us, go much deeper than metaphor. Thanks to our brain’s plasticity, the adaptation occurs also at a biological level.

The Internet promises to have particularly far-reaching effects on cognition. In a paper published in 1936, the British mathematician Alan Turing proved that a digital computer, which at the time existed only as a theoretical machine, could be programmed to perform the function of any other information-processing device. And that’s what we’re seeing today. The Internet, an immeasurably powerful computing system, is subsuming most of our other intellectual technologies. It’s becoming our map and our clock, our printing press and our typewriter, our calculator and our telephone, and our radio and TV.

When the Net absorbs a medium, that medium is re-created in the Net’s image. It injects the medium’s content with hyperlinks, blinking ads, and other digital gewgaws, and it surrounds the content with the content of all the other media it has absorbed. A new e-mail message, for instance, may announce its arrival as we’re glancing over the latest headlines at a newspaper’s site. The result is to scatter our attention and diffuse our concentration.

The Net’s influence doesn’t end at the edges of a computer screen, either. As people’s minds become attuned to the crazy quilt of Internet media, traditional media have to adapt to the audience’s new expectations. Television programs add text crawls and pop-up ads, and magazines and newspapers shorten their articles, introduce capsule summaries, and crowd their pages with easy-to-browse info-snippets. When, in March of this year, TheNew York Times decided to devote the second and third pages of every edition to article abstracts , its design director, Tom Bodkin, explained that the “shortcuts” would give harried readers a quick “taste” of the day’s news, sparing them the “less efficient” method of actually turning the pages and reading the articles. Old media have little choice but to play by the new-media rules.

Never has a communications system played so many roles in our lives—or exerted such broad influence over our thoughts—as the Internet does today. Yet, for all that’s been written about the Net, there’s been little consideration of how, exactly, it’s reprogramming us. The Net’s intellectual ethic remains obscure.

About the same time that Nietzsche started using his typewriter, an earnest young man named Frederick Winslow Taylor carried a stopwatch into the Midvale Steel plant in Philadelphia and began a historic series of experiments aimed at improving the efficiency of the plant’s machinists. With the approval of Midvale’s owners, he recruited a group of factory hands, set them to work on various metalworking machines, and recorded and timed their every movement as well as the operations of the machines. By breaking down every job into a sequence of small, discrete steps and then testing different ways of performing each one, Taylor created a set of precise instructions—an “algorithm,” we might say today—for how each worker should work. Midvale’s employees grumbled about the strict new regime, claiming that it turned them into little more than automatons, but the factory’s productivity soared.

More than a hundred years after the invention of the steam engine, the Industrial Revolution had at last found its philosophy and its philosopher. Taylor’s tight industrial choreography—his “system,” as he liked to call it—was embraced by manufacturers throughout the country and, in time, around the world. Seeking maximum speed, maximum efficiency, and maximum output, factory owners used time-and-motion studies to organize their work and configure the jobs of their workers. The goal, as Taylor defined it in his celebrated 1911 treatise, The Principles of Scientific Management, was to identify and adopt, for every job, the “one best method” of work and thereby to effect “the gradual substitution of science for rule of thumb throughout the mechanic arts.” Once his system was applied to all acts of manual labor, Taylor assured his followers, it would bring about a restructuring not only of industry but of society, creating a utopia of perfect efficiency. “In the past the man has been first,” he declared; “in the future the system must be first.”

Taylor’s system is still very much with us; it remains the ethic of industrial manufacturing. And now, thanks to the growing power that computer engineers and software coders wield over our intellectual lives, Taylor’s ethic is beginning to govern the realm of the mind as well. The Internet is a machine designed for the efficient and automated collection, transmission, and manipulation of information, and its legions of programmers are intent on finding the “one best method”—the perfect algorithm—to carry out every mental movement of what we’ve come to describe as “knowledge work.”

Google’s headquarters, in Mountain View, California—the Googleplex—is the Internet’s high church, and the religion practiced inside its walls is Taylorism. Google, says its chief executive, Eric Schmidt, is “a company that’s founded around the science of measurement,” and it is striving to “systematize everything” it does. Drawing on the terabytes of behavioral data it collects through its search engine and other sites, it carries out thousands of experiments a day, according to the Harvard Business Review, and it uses the results to refine the algorithms that increasingly control how people find information and extract meaning from it. What Taylor did for the work of the hand, Google is doing for the work of the mind.

The company has declared that its mission is “to organize the world’s information and make it universally accessible and useful.” It seeks to develop “the perfect search engine,” which it defines as something that “understands exactly what you mean and gives you back exactly what you want.” In Google’s view, information is a kind of commodity, a utilitarian resource that can be mined and processed with industrial efficiency. The more pieces of information we can “access” and the faster we can extract their gist, the more productive we become as thinkers.

Where does it end? Sergey Brin and Larry Page, the gifted young men who founded Google while pursuing doctoral degrees in computer science at Stanford, speak frequently of their desire to turn their search engine into an artificial intelligence, a HAL-like machine that might be connected directly to our brains. “The ultimate search engine is something as smart as people—or smarter,” Page said in a speech a few years back. “For us, working on search is a way to work on artificial intelligence.” In a 2004 interview with Newsweek, Brin said, “Certainly if you had all the world’s information directly attached to your brain, or an artificial brain that was smarter than your brain, you’d be better off.” Last year, Page told a convention of scientists that Google is “really trying to build artificial intelligence and to do it on a large scale.”

Such an ambition is a natural one, even an admirable one, for a pair of math whizzes with vast quantities of cash at their disposal and a small army of computer scientists in their employ. A fundamentally scientific enterprise, Google is motivated by a desire to use technology, in Eric Schmidt’s words, “to solve problems that have never been solved before,” and artificial intelligence is the hardest problem out there. Why wouldn’t Brin and Page want to be the ones to crack it?

Still, their easy assumption that we’d all “be better off” if our brains were supplemented, or even replaced, by an artificial intelligence is unsettling. It suggests a belief that intelligence is the output of a mechanical process, a series of discrete steps that can be isolated, measured, and optimized. In Google’s world, the world we enter when we go online, there’s little place for the fuzziness of contemplation. Ambiguity is not an opening for insight but a bug to be fixed. The human brain is just an outdated computer that needs a faster processor and a bigger hard drive.

The idea that our minds should operate as high-speed data-processing machines is not only built into the workings of the Internet, it is the network’s reigning business model as well. The faster we surf across the Web—the more links we click and pages we view—the more opportunities Google and other companies gain to collect information about us and to feed us advertisements. Most of the proprietors of the commercial Internet have a financial stake in collecting the crumbs of data we leave behind as we flit from link to link—the more crumbs, the better. The last thing these companies want is to encourage leisurely reading or slow, concentrated thought. It’s in their economic interest to drive us to distraction.

Maybe I’m just a worrywart. Just as there’s a tendency to glorify technological progress, there’s a countertendency to expect the worst of every new tool or machine. In Plato’s Phaedrus, Socrates bemoaned the development of writing. He feared that, as people came to rely on the written word as a substitute for the knowledge they used to carry inside their heads, they would, in the words of one of the dialogue’s characters, “cease to exercise their memory and become forgetful.” And because they would be able to “receive a quantity of information without proper instruction,” they would “be thought very knowledgeable when they are for the most part quite ignorant.” They would be “filled with the conceit of wisdom instead of real wisdom.” Socrates wasn’t wrong—the new technology did often have the effects he feared—but he was shortsighted. He couldn’t foresee the many ways that writing and reading would serve to spread information, spur fresh ideas, and expand human knowledge (if not wisdom).

The arrival of Gutenberg’s printing press, in the 15th century, set off another round of teeth gnashing. The Italian humanist Hieronimo Squarciafico worried that the easy availability of books would lead to intellectual laziness, making men “less studious” and weakening their minds. Others argued that cheaply printed books and broadsheets would undermine religious authority, demean the work of scholars and scribes, and spread sedition and debauchery. As New York University professor Clay Shirky notes, “Most of the arguments made against the printing press were correct, even prescient.” But, again, the doomsayers were unable to imagine the myriad blessings that the printed word would deliver.

So, yes, you should be skeptical of my skepticism. Perhaps those who dismiss critics of the Internet as Luddites or nostalgists will be proved correct, and from our hyperactive, data-stoked minds will spring a golden age of intellectual discovery and universal wisdom. Then again, the Net isn’t the alphabet, and although it may replace the printing press, it produces something altogether different. The kind of deep reading that a sequence of printed pages promotes is valuable not just for the knowledge we acquire from the author’s words but for the intellectual vibrations those words set off within our own minds. In the quiet spaces opened up by the sustained, undistracted reading of a book, or by any other act of contemplation, for that matter, we make our own associations, draw our own inferences and analogies, foster our own ideas. Deep reading, as Maryanne Wolf argues, is indistinguishable from deep thinking.

If we lose those quiet spaces, or fill them up with “content,” we will sacrifice something important not only in our selves but in our culture. In a recent essay, the playwright Richard Foreman eloquently described what’s at stake:

I come from a tradition of Western culture, in which the ideal (my ideal) was the complex, dense and “cathedral-like” structure of the highly educated and articulate personality—a man or woman who carried inside themselves a personally constructed and unique version of the entire heritage of the West. [But now] I see within us all (myself included) the replacement of complex inner density with a new kind of self—evolving under the pressure of information overload and the technology of the “instantly available.”

As we are drained of our “inner repertory of dense cultural inheritance,” Foreman concluded, we risk turning into “‘pancake people’—spread wide and thin as we connect with that vast network of information accessed by the mere touch of a button.”

I’m haunted by that scene in 2001. What makes it so poignant, and so weird, is the computer’s emotional response to the disassembly of its mind: its despair as one circuit after another goes dark, its childlike pleading with the astronaut—“I can feel it. I can feel it. I’m afraid”—and its final reversion to what can only be called a state of innocence. HAL’s outpouring of feeling contrasts with the emotionlessness that characterizes the human figures in the film, who go about their business with an almost robotic efficiency. Their thoughts and actions feel scripted, as if they’re following the steps of an algorithm. In the world of 2001, people have become so machinelike that the most human character turns out to be a machine. That’s the essence of Kubrick’s dark prophecy: as we come to rely on computers to mediate our understanding of the world, it is our own intelligence that flattens into artificial intelligence.

Nicholas Carr’s most recent book, The Big Switch: Rewiring the World, From Edison to Google, was published earlier this year.

http://www.theatlantic.com

There are several differing reports regarding the nature of material recently seized in Ukraine and other details surrounding the incident. For example, the Security Service of Ukraine (SBU) characterized the material as plutonium-239 in Ref E while later indicating it may be americium in Ref F. According to Ref A, on April 9, 2009, the SBU detained three Ukrainian citizens during a special operation in Ternopil Oblast. The SBU spokesman claimed that individuals were trying to sell a container with radioactive material that can be used by terrorists for making a “dirty bomb”. The suspects, two private entrepreneurs and a member of the Parliament of the Oblast Council, planned to sell the container for $10 million, “as they were sure that it contained 3.672 kg of Plutonium-239.” According to open source reporting, SBU’s preliminary investigation revealed that the container was produced at a Russian facility during Soviet times and could have been transported to Ukraine from one of the neighboring countries. A criminal case has been opened by the Ternopil Oblast Prosecutor’s Office in accordance with Part 3 Article 265 of the Criminal Code of Ukraine, and the material has been submitted to the Ministry of Internal Affairs of Ukraine for investigation. However, Ref B described the seizure as the result of a “vehicle search” with no mention of an investigation or operation being conducted, and Ref C reported that the seized material was americium-241 rather than plutonium-239. (For Post’s background, plutonium-239 is almost always accompanied by small amounts of other plutonium isotopes, including plutonium-241 — which decays into americium-241 — so we cannot rule out that the seized container may include some of both substances. Both Ref A and B indicated that the material was moved to the Ministry of Emergencies of Ukraine for detailed analysis by the State Enterprise Radon. All reporting stated that the State Nuclear Regulatory Committee of Ukraine and the IAEA were informed about the incident. Please note that USG technical expertise and forensic analysis is available if requested by the GOU.

(SBU) ACTION REQUEST: Washington requests a coordinated response from the country team to the questions in para 4 to clarify information gaps. Post is requested to provide a response to Washington via front-channel cable outlined in Ref D or via whatever means of official reporting the country team deems appropriate. The most pressing issue is whether the material seized is plutonium-239, i.e., is it suited for use in a nuclear explosive. Post is requested to congratulate the Government of Ukraine for making the arrest and express interest in further information from the GOU regarding the status of the investigation, the results of further analysis performed on the material, and developments in the criminal case opened.

(SBU) FOLLOW-UP QUESTIONS ABOUT SEIZED MATERIAL:

– What was the basis for identifying the material as plutonium? How did Ukrainian authorities determine the seized material was of Soviet-era Russian origin? Does Ukraine intend to contact Russian authorities in order to STATE 00039054 002 OF 002 share information on the seized material? What equipment was used to identify the material as emitting radiation exceeding 250 times the natural background levels, as stated in Ref A? If it was already measured or could be done safely, what is the radiation dose rate coming from the material when not in its container? Please state the distance between the material and detector when these are measured and provide a detailed description of the container, including what it’s made of, its thickness, and the shape of the material within it. Please explain the relationship between the container photographed on the SBU’s website and the black container displayed on the April 16 newscast of Russia’s Channel One TV (Ref E).

– Why did Ukrainian nuclear physicists and other scientists identify the container as a Soviet-era plutonium transport vessel? What information did they have which supports this assessment?

– Why does the SBU believe the container came from Tomsk, as opposed to other locations?

– If possible, please provide us with the analytical techniques and instrumentation that was used to determine the physical attributes and chemical, elemental, and isotopic compositions of the material, including the Pu-240/Pu-239 ratio, as well as relative amounts of Pu-241 and Am-241. Please also provide detection limits and uncertainties in the data.

– Is there any additional information regarding the individuals arrested, the potential end-users, or origin of the material (e.g., birthdates, passport numbers, phone numbers, markings on the containers)? Is additional radioactive material available? Where did the suspects obtain the material, why did they believe it was plutonium, and how much did they pay for it? How did the material enter the country? Why was that route/border crossing chosen? Was anything done to shield the source from detection?

– Was the material seized serendipitously or was it the result of an investigation by the SBU? If the latter, what prompted the investigation and when did it begin?

– When and where will the material be analyzed and who will have access to the results?

– Is the SBU currently investigating any other stolen radioactive materials cases? Do any of these cases have ties to the U.S.? Is the SBU willing to cooperate on investigations?

Washington appreciates Post’s assistance. CLINTON