Tuesday, May 29, 2007

Independent Financial Reseach Attacked

TALKING BUSINESS; Making Sure The Negative Can Be Heard

May 12, 2007

''If my attorneys knew I was here, they would be here with a hook,'' joked David A. Rocker a few weeks ago, looking out at a sea of people some 1,600 strong.

Mr. Rocker, 64, is a short seller -- or rather, a retired short seller; he hung up his spurs at the beginning of 2007 after a career that spanned almost four decades. His audience was made up largely of securities analysts from all over the country. This was the opening day of their annual convention, which was being held in the Hilton hotel in Midtown Manhattan.

Mr. Rocker and his firm, you may recall, were sued in the summer of 2005 by Patrick M. Byrne and his company Overstock.com. The suit asserts that he, along with the independent research firm Gradient Analytics and others, illegally conspired to drive down the company's stock. Gradient, the suit says, took its marching orders from Mr. Rocker, who paid it to publish damning reports that parroted what he wanted, so that he could make money as the stock went down.

The facts are not on Mr. Byrne's side -- Mr. Rocker wasn't even a client of Gradient when it began writing its tough-minded reports on Overstock, and indeed, the Securities and Exchange Commission recently sent Gradient a ''no action'' letter, which essentially cleared the firm of Mr. Byrne's charges.

But you know how lawsuits are: a year and a half later, the thing has barely gotten started. And you know how lawyers are: although Mr. Rocker believes passionately that Mr. Byrne's suit is nothing more than an attempt to silence criticism of his troubled company, he has held his tongue because that's what his lawyers have told him to do.

Not anymore. ''Free speech in America is very important,'' he told me recently. ''For securities analysis to be valid it needs to be objective.'' As Mr. Rocker pointed out in his speech, although 50 percent of all trades consist of people selling stocks, the vast majority of analyst recommendations remain bullish. Despite the settlement that the former New York Attorney General Eliot Spitzer (now governor, of course) extracted from Wall Street in April 2003 -- a settlement aimed specifically at making research more tough-minded and independent -- ''there are very strong pressures to be only positive about companies,'' Mr. Rocker said.

One pressure point is investors themselves; individuals and institutions alike want to see stocks go up, so they prefer bullish analysts over bearish ones. But another, greater source of pressure are the companies the analysts cover. Managements that are showered in stock options have their personal wealth directly tied to a rising stock price, so they are often infuriated when an analyst puts out a critical report or downgrades a rating to a sell. And they retaliate.

They refuse to allow the negative analyst to ask questions on conference calls. They somehow ''forget'' to include him in e-mail messages that are sent to other analysts. They decline to attend that analyst's conferences. They complain to his boss, who then inquires as to why the analyst has to be so darn negative all the time. Many companies still use investment banking business as a way to reward the firms that employ analysts they like and punish the ones with analysts they don't like -- even though that is a practice Mr. Spitzer sought to eradicate.

And sometimes companies sue, just as Overstock did. True, it's not an everyday occurrence -- and when it does happen, companies never admit that their suits are intended to silence critics, or put them out of business. Mr. Byrne, for instance, has always denied that his intent was to shut down criticism of Overstock. But it is hard to believe that silencing critics isn't the intent.

''It is a pernicious practice,'' said Owen Lamont, a professor at the Yale School of Management and a defender of short sellers.

''The rising threat of litigation is a huge disincentive for expressing negative views,'' Mr. Rocker said in his speech. ''It is costly and immensely time consuming. You have to face personal disparagement in the media, because they always have to include the allegation that you supposedly manipulated stocks. And it creates internal discord within the firm.''

Plus, it works.

You don't believe me? Exhibit A: David Maris, an analyst who used to cover Biovail, a Canadian biotech company, for Banc of America Securities. After writing a series of blistering reports about Biovail, Mr. Maris and his wife discovered they were being followed by private investigators. For a time, Banc of America stood by its analyst, providing security and giving him free rein to cover the company as he saw fit. But in February 2006, Biovail filed a lawsuit against Gradient, a handful of hedge funds and Mr. Maris, making the same kind of stock manipulation accusations that Overstock made six months earlier. Not long after, a suit was filed on behalf of Biovail's shareholders that included Banc of America Securities itself as a defendant.

Once Banc of America Securities was involved in the litigation, it dropped coverage of Biovail. ''Regrettably,'' wrote Joan Solotar, the firm's head of equity research, ''our coverage decision removes an informed and independent voice on Biovail.'' Well, that's one way of putting it. Here's another: Biovail won.

Officials at Banc of America Securities insist that the situation is an aberration. But is it, really? What will it do the next time an angry company sues? If the tactic worked for Biovail, which by the way insists that the evidence will support our allegations, why won't it work for any other company annoyed at BofA's analysts? As for Mr. Maris, he is no longer with Banc of America Securities. He left last December for a hedge fund, which means his research no longer helps anybody except his fund. So his independent voice has been silenced permanently.

Exhibit B: Timothy Mulligan, former author of the newsletter ''The Eyeshade Report.'' Mr. Mulligan, a forensic accountant and lawyer, started a small business writing reports on ''quality of earnings'' -- that is, how shaky (or solid) a company's reported earnings were. A few years ago, a company called Matrixx Initiatives, which makes Zicam, a nasal spray, sued a group of anonymous message board critics -- presumably to shut them up. In 2004, Matrixx subpoenaed Mr. Mulligan, demanding that he turn over his sources and subscriber list, on the theory that that would help Matrixx identify the message board critics.

Mr. Mulligan resisted, but the case dragged on for years. In the meantime, Mr. Mulligan, who was representing himself, was spending more time on his legal case than on his business. ''It was overwhelming,'' he said. ''If I had had a lawyer, I would have had a legal bill in excess of $300,000. Our legal system is such that you can easily keep a frivolous lawsuit alive for years.'' Indeed, although Matrixx abandoned the case in January, it was too late for Mr. Mulligan. By November 2005, he had closed the business. (A Matrixx official did not return my phone call.) Another independent voice silenced.

Exhibit C: John Gwynn, an analyst with the small firm of Morgan Keegan, who covered a Canadian insurance company called Fairfax Financial Holdings, which also has a history of lashing back at critics. (What is it about these small Canadian companies?) Last July, Fairfax filed a big lawsuit against 20 defendants, asserting -- what else? -- stock manipulation. One defendant was Mr. Gwynn, who had been one of the few bearish analysts covering the company.

In the immediate aftermath, Mr. Gwynn, who declined to return my phone calls, continued covering Fairfax. But in January, he dropped coverage. ''The discontinuation of Fairfax coverage is not a reflection of any change in our relatively negative perspective of the company's fundamental business prospects,'' he wrote in a note to his clients. ''Rather it is the result of a litigation strategy designed by Fairfax to silence negative research coverage.'' Another firm that has been openly skeptical of Fairfax, Institutional Credit Partners, has had its staff followed and investigated, just like Mr. Maris.

In an e-mail message, Mike Sitrick, who represents Biovail and Fairfax, said: ''The only analysts Fairfax named in its lawsuit are those which it alleges used improper means to attack the company and impact the price of the company's stock. Mr. Rocker's assertions that the suit was filed to stifle criticism are not only untrue in the case of Fairfax, but a thinly veiled attempt to divert attention from the wrongdoing alleged in the complaint.'' Mr. Sitrick denied that Mr. Maris was ever ''tailed'' but says that Fairfax has investigated International Credit Partners.

And then there's Gradient, a skeptical independent voice if ever there was one. As it happens, Gradient's co-founder and editor in chief, Donn Vickery, has also decided the time has come to speak out. I talked to him a few days after I heard Mr. Rocker's speech.

''If we hadn't been around for 10 years, the lawsuits might have put us out of business,'' he said. ''As it was, our growth was slowed, and our customer retention was more difficult. Certainly our legal costs are way up. We've had employees accosted in parking lots by private investigators. Calls to home numbers and cellphones. We've had more turnover during this time, and you have to figure this has had an impact.'' And of course, he's still embroiled in two lawsuits, both of which deserve to be thrown out of court, but will probably last for years.

These are bullish times in the stock market, so it is easy to forget how important it is to have skeptical -- and even negative --voices to counterbalance all the happy talk surrounding stocks. Even when the skeptics are wrong, they make the market healthier because they offer a point of view that people need to hear. And quite often, of course, they're right. Mr. Rocker, for instance, sniffed out problems at Boston Chicken and Krispy Kreme long before the market did. Wouldn't you have wanted to know what he was saying about those companies?

''I hope all of you will recognize this threat and act courageously to protect free expression in the investment business,'' Mr. Rocker said to the assembled analysts at the end of his speech. ''We need to show those who would silence us that they are wrong.''

Are you listening, Banc of America Securities?

Copyright 2007 The New York Times Company

College Admissions Crunch

Ivy League Admissions Crunch Brings New Cachet to Next Tier

May 16, 2007

Lehigh University has never been as sought after as Stanford, Yale or Harvard. But this year, awash in applications, it churned out rejection letters and may break more hearts when it comes to its waiting list.

Call them second-tier colleges (a phrase some administrators despise) or call them the new Ivies (this, they can live with). Twenty-five to 40 universities like Lehigh, traditionally perceived as being a notch below the most elite, have seen their cachet climb because of the astonishing competitive crush at the top.

''It's harder to get into Bowdoin now than it was to get into Princeton when I worked there,'' said William M. Shain, dean of admissions and financial aid at Bowdoin College in Brunswick, Me., who worked at Princeton in the 1970s, which is one of those benefiting from the spillover as the country's most prestigious colleges turn away nearly 9 out of 10 applicants.

At Lehigh, known for its strength in engineering and business, about 12,000 students applied this year. That is a whopping 50 percent increase in applications over seven years ago and more than 10 times the seats available in a freshman class of 1,150. The median SAT score of admitted students has climbed about 10 points a year in recent years, officials said.

Students have generally been quicker to adapt to the new realities than parents have been, many guidance counselors said.

''My sense is that parents are a lot more concerned with how the name is going to look to neighbors and family members, and there is a real sense among parents that it's almost embarrassing if your child has to settle for a lower-level school,'' said Carolyn Lawrence, a private college counselor and the author of a blog, AdmissionsAdvice.com.

Some students who might have readily won admission to Lehigh, Middlebury College, Colgate University, Pomona College, Emory University or New York University just a few years ago are now relegated to waiting lists, left to confront the long odds that an offer of admission might materialize over the next month.

John Dunham, a senior at the private Delbarton School in Morristown, N.J., had trained his sights on Bucknell University and Lafayette College. He was rejected by Bucknell and put on the waiting list at Lafayette. His college counselor pushed him toward Kenyon College in Ohio, or as the counselor put it ''the Williams of the Midwest.''

But Mr. Dunham, a solid student who played football and baseball in high school, decided to play baseball on an athletic scholarship at Central Connecticut State.

''People are definitely broadening their horizons, because it's gotten so competitive,'' Mr. Dunham said.

The logjam is the result of supply and demand. The number of students graduating from high school has been increasing, and the preoccupation with the top universities, once primarily a Northeastern phenomenon, has become a more national obsession. High-achieving students are also applying to more colleges than they used to, primarily because of uncertainty over where they will be admitted.

Supply, however, has remained constant. Most of the sought-after universities have not expanded their freshman classes. The result, said Jonathan Miller, a senior at Mamaroneck High School in suburban Westchester County, N.Y., is that many classmates perceive institutions like Tufts University, Bowdoin, the University of Rochester and Lehigh in a new light. ''I would say that high school students are looking more and more at these schools,'' he said, ''the way they used to look at the Ivies.''

An A student with good SAT scores, Mr. Miller said that he considered applying to Brown University, among others, but that his guidance counselor discouraged him, emphasizing the tough odds. Mr. Miller decided instead to apply early admission to Tufts, and by December, had been accepted. He said he was delighted.

Some students who have accepted offers from these colleges were rejected by the most prestigious universities. Others, keenly aware of the extreme competition at the top, decided at the outset to focus on colleges more likely to admit them.

''I'm sure part of what we're seeing is people are saying, 'Well, if the Ivies and Duke are inaccessible, where do I go to get a similar academic experience?' '' said Jonathan Burdick, dean of admissions and financial aid at Rochester.

There are other reasons, too, why these colleges and universities find their stock climbing. To position themselves in the fiercely competitive market, they have hired stronger faculty; built new libraries, science complexes, dining halls, fitness centers and dormitories; and created international programs and interdisciplinary majors. Many have also sought to transform themselves from regional institutions to national ones, recruiting across the country.

At Middlebury, applications have increased by 1,000 in each of the last two years; nearly 7,200 students applied this year, compared with 5,200 in 2005. At Kenyon, about 4,600 students applied this year, while 2,000 did six years ago. Colgate received 8,752 applications this year, compared with 5,852 a decade ago.

And at the University of Vermont, a state institution, nearly 19,000 applications poured in this year, compared with 7,400 seven years ago. Many of the most prestigious public universities like Michigan and Virginia have also become much more selective, especially for out-of-state applicants.

The academic profile of students enrolling at these colleges is improving, based on average SAT scores and other data.

''We're getting a remarkably gifted group of students,'' said Gerard P. Lennon, associate dean in the college of engineering and applied sciences at Lehigh, who has taught at the university for 27 years. The median SAT score in the combined verbal and math parts of the test is now 1,320 out of 1,600. (That is not counting the writing section of the test.)

But the spillover at the second level has also created its own spillover; some students who not long ago would have won admission to these colleges no longer are.

The admission rate at Pomona, in Claremont, Calif., was about 15 percent this spring; it was 38 percent 20 years ago. Bowdoin's rate was 18.5 percent this year and 32 percent eight years ago. At Lehigh, 31 percent were accepted this spring, compared with 47 percent in 2001.

High school guidance counselors have become the reality instructors, encouraging students and parents to think more broadly about colleges.

''Now a kid who is applying to Harvard, Yale, Princeton is also applying to the Lehighs and Lafayettes,'' said Brett Levine, director of guidance at Madison High School in New Jersey. ''It's the same tier, basically.''

Copyright 2007 The New York Times Company

Afghanistan the Opium Paradise

Poppy Fields Are Now a Front Line in Afghanistan War

May 16, 2007

In a walled compound outside Kabul, two members of Colombia's counternarcotics police force are trying to teach raw Afghan recruits how to wage close-quarters combat.

Using wooden mock AK-47 assault rifles, Lt. John Castañeda and Cpl. John Orejuela demonstrate commando tactics to about 20 new members of what is intended to be an elite Afghan drug strike force. The recruits -- who American officials say lack even basic law enforcement skills -- watch wide-eyed.

''This is kindergarten,'' said Vincent Balbo, the United States Drug Enforcement Administration chief in Kabul, whose office is overseeing the training. ''It's Narcotics 101.'' Another D.E.A. agent added: ''We are at a stage now of telling these recruits, 'This is a handgun, this is a bullet.' ''

It is a measure of this country's virulent opium trade, which has helped revive the Taliban while corroding the credibility of the Afghan government, that American officials hope that Afghanistan's drug problem will someday be only as bad as that of Colombia.

While the Latin American nation remains the world's cocaine capital and is still plagued by drug-related violence, American officials argue that decades of American counternarcotics efforts there have at least helped stabilize the country.

''I wanted the Colombians to come here to give the Afghans something to aspire to,'' Mr. Balbo said. ''To instill the fact that they have been doing this for years, and it has worked.''

To fight a Taliban insurgency flush with drug money for recruits and weapons, the Bush administration recognizes that it must also combat the drug trafficking it had largely ignored for years. But plans to clear poppy fields and pursue major drug figures have been frustrated by corruption in the Afghan government, and derided by critics as belated half-measures or missteps not likely to have much impact.

''There may have been things one could have done earlier on, but at this stage, I think there are relatively limited good options,'' said James F. Dobbins, a former State Department official who served as the administration's special representative on Afghanistan.

Poppy growing is endemic in the countryside, and Afghanistan now produces 92 percent of the world's opium. But until recently, American officials acknowledge, fighting drugs was considered a distraction from fighting terrorists.

The State Department and Pentagon repeatedly clashed over drug policy, according to current and former officials who were interviewed. Pentagon leaders refused to bomb drug laboratories and often balked at helping other agencies and the Afghan government destroy poppy fields, disrupt opium shipments or capture major traffickers, the officials say.

Some of the officials declined to be identified because they were not authorized to speak publicly.

Former Defense Secretary Donald H. Rumsfeld and military leaders also played down or dismissed growing signs that drug money was being funneled to the Taliban, the officials say.

And the C.I.A. and military turned a blind eye to drug-related activities by prominent warlords or political figures they had installed in power, Afghan and American officials say.

Not so long ago, Afghanistan was trumpeted as a success, a country freed from tyranny and Al Qaeda. But as the Taliban's grip continues to tighten, threatening Afghanistan's future and the fight against terrorism, Americans and Afghans are increasingly asking what went wrong. To that, some American officials say that failing to disrupt the drug trade was a critical strategic mistake.

''This is the Afghan equivalent of failing to deal with looting in Baghdad,'' said Andre D. Hollis, a former deputy assistant secretary of defense for counternarcotics. ''If you are not dealing with those who are threatened by security and who undermine security, namely drug traffickers, all your other grandiose plans will come to naught.''

Administration officials say they had believed they could eliminate the insurgency first, then tackle the drug trade. ''Now people recognize that it's all related, and it's one issue,'' said Thomas Schweich, the State Department's coordinator for counternarcotics in Afghanistan. ''It's no longer just a drug problem. It is an economic problem, a political problem and a security problem.''

More American Help

To step up efforts, last fall President Bush privately prodded President Hamid Karzai of Afghanistan to curb opium production, then vowed publicly in February to provide more help.

While the D.E.A. has imported Colombian trainers in Kabul, United States Justice Department officials are helping build from scratch an Afghan judicial system to deal with drug cases. State Department officials, meanwhile, have helped found the Afghan Eradication Force to wipe out opium poppy crops. The American military is providing logistical support for D.E.A. raids and eradication.

The symbolic heart of the Bush administration's efforts is a construction site amid tin shanties and junkyards near the Kabul International Airport: a new $8 million Counternarcotics Justice Center. After its scheduled opening in July, the center will be a one-stop shop for drug cases, with two courts, offices for 70 prosecutors and investigators and jail cells for 56 suspects.

But while new Afghan drug prosecutors are charging hundreds of messengers and truck drivers with drug offenses, major dealers, often with ties both to government officials and the Taliban, operate virtually at will.

An American counternarcotics official in Washington said a classified list late last year developed by several United States agencies identified more than 30 important Afghan drug suspects, including at least five government officials. But they are unlikely to be actively sought anytime soon, several American officials caution.

In part, that is because the Afghan drug prosecutors are eager, but their legal skills are weak. ''You look at the indictments, and it looks like a sixth grader wrote it,'' said Rob Lunnen, a Salt Lake City federal prosecutor assisting the Afghan drug task force.

Another American prosecutor said, ''If we try to go after deputy ministerial or ministerial level corruption cases, then you are not going to have a system that can handle it, and they would just get released.''

The few times that influential drug figures have been investigated, the resistance has been intense. In January, for example, the D.E.A. and the Afghan national police arrested two drug suspects in remote Kunduz Province, only to find themselves hauled before the provincial governor as a crowd gathered outside. The drug team had to leave their suspects in custody in Kunduz.

''It's happened several times that there will be a raid, and a mayor is involved, and nothing happens,'' Mr. Lunnen complained. ''Every day we feel frustrated.'' He added that the Karzai government did not adequately support the Afghan drug task force because it was viewed ''as a creation of the West.''

Failing to charge major traffickers feeds Afghans' skepticism about American intentions, said counternarcotics officials, lawmakers and experts on Afghanistan.

''To Afghans, our counternarcotics policy looks like a policy of rewarding rich traffickers and punishing poor farmers,'' Barnett R. Rubin, a New York University professor and an expert on Afghanistan, told a Senate panel in March.

Many Afghans are hostile to opium eradication, saying it deprives farmers of their livelihoods. Mr. Rubin and others say that destroying crops drives villagers into the arms of the Taliban. But the United States has not embraced large-scale aid and employment programs that might deter farmers from planting poppies. Instead, the antidrug teams venture out into the countryside, where some have been killed by suicide bombers and Taliban forces allied with drug lords.

Fearing a backlash from the populace, the Afghan government has rejected American proposals for chemical spraying, permitting only manual eradication. That requires hundreds of men with sticks and tractors -- often surrounded by American contractors for protection -- to knock down poppy bulbs by hand. It is agonizingly slow and largely ineffective.

So far this year, about 20,000 acres have been destroyed, just a fraction of the record 407,000 acres planted with opium poppy, according to the United Nations. The crop is expected to yield more than 6,500 tons of opium, exceeding global demand. The export value -- about $3.1 billion -- is equivalent to about half of the legal Afghan economy.

Like the law enforcement efforts, the eradication program is rife with corruption. Farmers know they must offer bribes to avoid having their crops destroyed, American and Afghan drug officials said. It is often only those who lack money or political connections whose fields are singled out.

''I would go out to an eradication site, and we would be driven past miles and miles of poppy fields, and the Afghans would say, 'You can't do that field,' because it belongs to such and such a commander, 'You can't do that field, you can't do this field,' '' recalled one American counternarcotics official. ''Finally, we would arrive at one field where we could set up for eradication, and you had to wonder, why had they chosen this one?''

Gen. Sayed Kamal Sadat, chief of the Afghan national drug counterforce, acknowledges that many officials are for sale.

Opium Used as Currency

''We have security chiefs, police chiefs, who traffic in drugs,'' he added. ''Traffickers give money to governors to allow cultivation in their areas. So far, I haven't seen any governor or security commander willing to crack down.'' Drug production is now greatest where the Taliban is strongest. In Helmand Province, which the insurgents mostly control, opium is so abundant that blocks of it serve as local currency.

Farmers growing poppies in Taliban-controlled areas pay a tax to the insurgents, who then hire ''day fighters.'' For their part, drug traffickers pay the Taliban for security. Smugglers who take opium and heroin out of Afghanistan bring weapons and bombs back for the insurgents, officials say.

In Nimruz Province, in southwest Afghanistan, the Taliban demanded that traffickers provide $4,000 a month and a Toyota Land Cruiser to support 10-man fighting units, according to United Nations officials. An Afghan official said Taliban forces were given five Land Cruisers for attacking the Afghan border police so traffickers could move drugs more easily.

The Bush administration was reluctant to take on the drug issue even from the start of the war. Soon after the Sept. 11 attacks, military and intelligence analysts turned over to the Pentagon a list of targets linked to Al Qaeda -- and its Taliban hosts -- inside Afghanistan. It included military targets, as well as drug labs and warehouses, where the Taliban was believed to have stockpiled opium after banning poppy cultivation in 2001.

Destroying the government's principal source of revenue would help put the Taliban out of business, the analysts figured.

But when the air campaign over Afghanistan began, top military officials removed all drug-related targets, according to one analyst who attended meetings where the bombing raids were discussed.

After the Taliban collapsed in late 2001, farmers began to plant opium across the countryside.

Some warlords and commanders that the C.I.A. and military helped put in power -- including tribal figures who had been in exile in Pakistan and others in the American-backed Northern Alliance -- quickly began to enrich themselves through drug trafficking, several American officials say.

''At the time of our intervention, there wasn't an active drug trade going on,'' said Mr. Dobbins, the former State Department official. ''But some of the people we supported became involved and active as the drug trade took hold.'' American officials say that the postwar chaos left them with no choice but to work with militia leaders involved in drug dealing.

''You've got to consider the time and the context,'' said Craig Chretien, a counternarcotics official at the United States Embassy in Kabul. ''D.E.A. wasn't here. There was no investigative arm to look into any of their activities of these people after whatever cooperation they gave the C.I.A.''

Some Afghans do not share that view. ''The C.I.A. should have moved swiftly against those people,'' said the Afghan attorney general, Abdul Jabbar Sabit, arguing that ignoring the drug dealing encouraged lawlessness.

Later, though, American officials in several agencies urged taking steps to curb opium cultivation and trafficking, and grew frustrated when nothing happened.

Mr. Rumsfeld opposed any military involvement in counternarcotics operations, several American officials say. Aside from concerns about stirring up resentment by peasants or alienating Afghan officials, the Pentagon viewed fighting drugs as a dangerous diversion from fighting terrorism.

And with a war in Iraq already quietly under discussion, Mr. Rumsfeld and his commanders did not want to commit more forces to Afghanistan.

The Pentagon also argued that countering drugs had always been a law enforcement mission, not a military one. But in war-ravaged Afghanistan, without the assistance of American troops, it was virtually impossible for other agencies to work effectively.

Seizing an Opportunity

The Pentagon's own counternarcotics office, though, was eager to take on the fight. Soon after the American-led invasion, Mr. Hollis, the former counternarcotics official, raised the matter with top military officials.

''The commanders said we don't do drugs, we're just killing terrorists,'' Mr. Hollis recalled. ''That showed a lack of understanding of the threat. I cared about going after the drug routes. If you could smuggle drugs, you could smuggle weapons and terrorists. It concerned me that if we didn't go after the drug trade then, we would lose a golden opportunity.''

Later, when Mr. Hollis asked the Defense Intelligence Agency to assess the link between drugs and the Taliban, the agency refused to do so, he said. It was not until the fall of 2004, when both the United Nations and the C.I.A. issued stunning estimates of Afghan opium cultivation, that the White House expressed alarm about the issue.

That November, President Bush met for the first time with his top advisers to discuss the drug strategy. Colin L. Powell, then secretary of state, pushed for aggressive measures that had been used in Colombia -- aerial spraying, promoting alternative crops, singling out drug labs and disrupting drug shipments.

Mr. Bush seemed willing to adopt the measures, saying he did not want to ''waste another American life on a ''narco-state,'' recalled Bobby Charles, a former State Department counternarcotics official who attended the session. But the president later backed off after lobbying by Mr. Rumsfeld and Zalmay Khalilzad, then the American ambassador in Kabul, according to Mr. Charles.

A spokesman for Mr. Khalilzad, now the American ambassador to the United Nations, said he did not want to discuss his recommendations to the president. A Pentagon spokesman declined to comment on Mr. Rumsfeld's decisions, as did a spokesman for Mr. Rumsfeld.

D.E.A. officials were also thwarted in their attempts to stem drug corruption. In 2005, D.E.A. agents and their Afghan counterparts found nine tons of opium in the office of Sher Muhammad Akhundzada, the governor of Helmand Province.

But the counternarcotics team was blocked from taking any action against the governor, who had close ties to American and British military, intelligence and diplomatic officials. Mr. Akhundzada, in a recent interview, said he was just storing opium that had been seized as contraband. Eventually, he was forced aside, though he now serves in the Afghan Senate.

The Taliban offensive in the spring of 2006 finally forced military officials and civilian Pentagon officials to drop their opposition to fighting drugs. The resignation of Mr. Rumsfeld, along with prodding by some House Republicans, also contributed to what Mr. Chretien, the counternarcotics official, described as a ''sea change'' in attitude among defense officials.

In Kabul, the D.E.A. is trying to move ahead, if only in small steps, like training the Afghan drug force. ''The Colombians are here to instill the heart of the lion,'' said Mr. Balbo, the D.E.A. official. But even that appears daunting.

Recruits for the 125-member National Interdiction Unit lined up in sweatsuits one day in March. Supposedly a handpicked elite, they were a ragtag group as they stretched for their morning jog. Some were young, but many were older and out of shape. During the day, they had trouble keeping up with the Colombians.

''They aren't used to working long hours, '' said Lieutenant Castañeda, the Colombian counternarcotics officer. Trying to be diplomatic, he added: ''I understand that there are cultural challenges that we have to deal with. They have a lot to learn.''

Mr. Balbo counseled patience. Drug wars are long, he said, and there are no quick solutions.

''This is going to take 20 or 30 years,'' he said. ''D.E.A. has been in Thailand for 40 years. Here, we're in year two.''

Copyright 2007 The New York Times Company

Sunday, May 27, 2007

More Than Ever, It Pays to Be the Top Executive

May 25, 2007

Like most companies, Office Depot has long made sure that its chief executive was the highest-paid employee. Ten years ago, the $2.2 million pay package of its chief was more than double that of his No. 2. The fifth-ranked executive received less than one-third.

But the incentive for reaching the very top of the company is now far greater. Steve Odland, who runs Office Depot today, made almost $12 million last year, more than four times the compensation of the second-highest-paid executive and over six times that of the fifth-ranking executive in the current hierarchy.

As executive pay has surged in most American companies, attention has focused on the growing gap between the earnings of top executives and the average wage of workers in cubicles or on the shop floor. Little noticed, though, is how much the gap has also widened between the summit and the next few echelons down.

“It’s executive pay chasing executive pay,” said Mark Van Clieaf, managing director of MVC Associates International, a consulting firm that develops compensation plans. “But nobody looked at the issue of internal pay equity, so the disparity just kept getting bigger.”

Few are deprived in corporate suites, of course. But the widening disparities in business, which show up in a variety of other ways, reflect a dynamic that is taking hold across the economy: the growing concentration of wealth and income among a select group at the pinnacle of success, leaving many others with similar talents and experience well behind.

In the 1960s and ’70s, chief executives running the nation’s biggest companies earned 80 percent more, on average, than the third-highest-paid executives, according to a recent study by Carola Frydman of the Massachusetts Institute of Technology and Raven E. Saks at the Federal Reserve. By the early part of this decade, the gap in the executive suite between No. 1 and No. 3 had swollen to 260 percent.

Many experts argue that chief executives have a particular ability to drive their own pay upward, in part by manipulating directors they work closely with and encouraging the use of consulting firms that have a built-in incentive to increase pay packages for those who hire them.

“There’s a sense that the C.E.O.’s pay is not determined by supply and demand,” said Robert J. Gordon, a professor of economics at Northwestern University.

There is some truth to that, but economists who have recently studied the issue contend that basic economic forces still play a big role in determining pay at the very top of the corporate ladder. It just happens to be working to the advantage of an increasingly narrow slice of business leaders.

The pay of chief executives, analysts say, is being driven by superstar dynamics similar to those that determine the inordinate rewards for pop stars and athletes — a phenomenon first explained by Sherwin Rosen of the University of Chicago in 1981 and underlined more than a decade ago by the economists Robert H. Frank and Philip J. Cook in their book “The Winner-Take-All Society” (Free Press, 1995).

As American companies, American hedge funds — and even American lawsuits — have grown in size, it has become ever more valuable to get the “best” chief executive or fund manager or litigator. This has fueled a fierce competition for talent at the top, which has pushed economic rewards farther up the ladder of success, concentrating the richest pay levels even more.

“There is an interaction between technology and scale which is true in all these businesses,” said Steven N. Kaplan, a finance professor at the Graduate School of Business of the University of Chicago. “One person can oversee more assets, and this translates into more money.”

The gap in executive pay is widening even at companies that once had more even-handed practices. At Wal-Mart, for instance, the top executive 10 years ago made some 40 percent more than his second in command. Last year, H. Lee Scott, the chief executive, received more than twice as much as his chief administrative officer, John B. Menzer.

“Wal-Mart was under the influence of its founder for so long, and he had a different set of values than the current managers,” said Graef S. Crystal, a leading expert on executive pay. “He was much more egalitarian. These are professional managers.”

The changing rewards for corporate executives are not unlike the acute concentration of wealth among entertainment industry superstars, with television, the globalization of movie audiences and the spread of digital technologies having allowed those at the very top to generate enormous incomes at the expense of those that might be slightly less popular.

Alan B. Krueger, a Princeton economist, found that the share of concert ticket revenue taken by the top 1 percent of pop stars — measured by sales per concert — rose to 56 percent in 2003 from 26 percent in 1982.

Similarly, the best-paid baseball player 20 years ago, Gary Carter, earned $2.4 million from the New York Mets, 41 percent more than the 25th-ranked, Tim Raines of the Montreal Expos. This season, the $28 million, pro rated, that the Yankees will pay Roger Clemens is more than double the paycheck of David Ortiz of the Boston Red Sox, who is 24 rungs down.

This even more skewed pattern at and near the top of the income ladder has become a sort of national standard. From 1985 to 2005, the incomes of taxpayers in the top 10th of earnings rose about 54 percent after inflation, to an average of $207,200, according to Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley.

But among the top 1 percent of taxpayers it increased 128 percent, to $812,500. And among the top 0.01 percent it nearly quadrupled, to $14 million on average.

Corporate executives, for all the attention they have drawn, are far from a majority of the superwealthy. Mr. Gordon and Ian Dew-Becker at the National Bureau of Economic Research estimated that executives accounted for 20 percent of the income in the top 0.01 percent of the scale. Others put their share lower — around 8.5 percent.

As for the gap between C.E.O. pay and that of executives working under them, one reason may be that the larger share of stock options in top executives’ compensation packages these days makes the gap widen when the market is rising, as it was in the late 1990s and generally these days. By contrast, it narrowed somewhat in the first years of the decade, when equity prices fell.

Still, that does not fully explain the current situation, fueling the debate over runaway executive pay. Standard views tend to splinter between corporate apologists, who say that top executives have tougher jobs and are more deserving than in the past, and critics who accuse many of them, in essence, of doing little more than larding their pay at the expense of stockholders.

At Office Depot, a spokesman, Brian Levine, said, “We usually don’t comment on our executive compensation other than to say all our programs are linked directly to performance.”

Mr. Scott of Wal-Mart, at a recent lunch with reporters, argued that his pay had shot up in relation to the rest of the executive pack in part because today’s chief has a much more demanding job than a decade ago.

“As we enter a world that is more complex, the company places value on things that go beyond the running of the business,” Mr. Scott said. “There are aspects of interfacing with the external world that are more like running a presidential campaign than running a business.”

But a number of economists argue that the steep growth of executive pay has less to do with the complexities of the job and more with the competition for talent among American companies.

Kevin J. Murphy, a professor of finance at the University of Southern California, said that in the 1970s, fewer than 10 percent of chief executives were hired from outside and most of those were brought in to save a company in distress.

Since then, he argued, generalist executive skills have become more valuable to companies than expertise in whatever the company does, leading to fewer businesses’ promoting executives from within. By 2000, more than a third of all new chiefs were brought in from outside.

As a result, more C.E.O.’s find themselves in the enviable position of being pursued by competing suitors. And this type of market does not exist to the same extent for executives one or two notches down.

“A really successful C.E.O. can have a significant impact on the stock price,” said Joseph E. Bachelder, a tax lawyer who advises firms on executive pay, “and I’m not sure I can say the same is true generally about the C.F.O. or a general counsel.”

As companies grow and expand globally, the value of the top executive can grow exponentially. In a study last year, two economists, Xavier Gabaix of the Massachusetts Institute of Technology and Augustin Landier of New York University, argued that the fast rise in pay of corporate C.E.O.’s mostly reflected the growing size of American corporations.

Processing reams of data, the economists estimated that hiring the most effective chief executive in the country would, statistically, increase the stock value of a company by only 0.016 percent, compared with hiring the 250th chief executive. But at a company like General Electric, which is worth about $380 billion, that tiny difference would amount to $60 million.

This, the economists argued, helps explain why that top chief executive earned five times as much as the 250th. “Substantial firm size leads to the economics of superstars, translating small differences in ability to very large deviations in pay,” the economists wrote.

But all the attention on chief executives as business superstars raises new questions. In a report published last year, Moody’s Investors Service said it would start taking into account the difference in pay within an executive team in its bond ratings.

“It raises issues of key-person risk and of whether the C.E.O. has too much authority,” said Mark Watson, managing director of the corporate governance group at Moody’s. “We are rating the company, not the person. A bus might come by and knock the person over.”

Copyright 2007 The New York Times Company

Monday, May 21, 2007

Hollywood in the Pellicano Case

In Court Files, Hollywood’s Mr. Fix-It at Work
May 21, 2007


LOS ANGELES, May 20 — Just hours after a raft of articles suggesting the impending collapse of his business hit the papers on April 11, 2002, Michael S. Ovitz did what Hollywood moguls had done for a generation: He called Anthony Pellicano.

“I need to see you,” Mr. Ovitz said, asking for a private meeting at an out-of-the-way spot. “This is the single most complex situation imaginable.”

They all went to Mr. Pellicano when their situations seemed too complex, or the stakes too high, to leave anything to chance: executives and actors, studio bosses and their jilted spouses, the hottest and the has-been. In nearly 20 years in Los Angeles, he had made himself into the rightful owner of that breathless title, “Detective to the Stars,” the one man who would, and seemingly could, do anything to clean up any mess.

So when federal agents raided Mr. Pellicano’s office in November 2002, his case became a local obsession: who would be fingered next, people wondered anxiously, as investigators gathered evidence and listened to Mr. Pellicano’s wiretap tapes.

Perhaps the case has not lived up to its advance billing as the biggest Hollywood scandal in decades. More than a dozen people have been arrested, including a movie director, the head of a Century City law firm and a cast of minor characters.

Mr. Pellicano himself sits in jail, awaiting trial on charges that his vaunted detective prowess actually boiled down to an almost addict-like reliance on illegal wiretaps. He has pleaded not guilty to charges of wiretapping and conspiracy. Only one actual wiretap has been produced by prosecutors, and defense lawyers dispute its authenticity.

Still, the evidence so far — 150,000 pages of documents and hundreds of recordings Mr. Pellicano made of his own phone calls, many of which include discussions of wiretapping — is a rich sourcebook of show-business manners, mores and argot, a vicarious tour through the dysfunctional heart of Hollywood.

The case file, much of which was obtained by The New York Times, illustrates the economics of information in the place that values it most — a community devoted to the manufacture, control and perpetuation of image. And it explains why Mr. Pellicano, who trafficked in all manner of potentially damaging data, was so eagerly hired and his unmasking so direly feared.

The marketplace was filled with potential buyers, from the top of the town to the bottom of the D-list, in the movies, television, music, even the art and sports worlds. Stars might have had the most to lose if secrets were exposed. But entertainment executives — for whom job security is notoriously fleeting, and reputations as evanescent as last weekend’s box office — had ample reason to think others were plotting against them, or at least rooting for them to fail.

Back in the golden days of Hollywood, the studios had in-house detectives to erase the indiscretions of their bosses and stars. In the era of outsourcing, Mr. Pellicano set himself up as a fixer for hire, on a $25,000 nonrefundable retainer, creating a character to suit whatever his clients imagined him to be: old-time shamus or shady ex-spy, geeky technophile or mobbed-up muscle. His constant allusions to being “connected,” to his roots in Al Capone’s old stomping ground of Cicero, Ill., nurtured what, for some customers, was a captivating aura of violence.

From his suite on Sunset Boulevard, he maneuvered his way into the confidences of the powerful and fabulous, peddling information as ammunition or as protection from the unintended consequences of their lives.

A Penchant for Celebrities

He started out in Chicago in the 1960s tracking deadbeat customers for the Spiegel catalog, then hung out a shingle as a private investigator. From the beginning, he made celebrity clients his calling card. When the remains of Elizabeth Taylor’s husband, the producer Mike Todd, disappeared from a Chicago cemetery in 1978, Mr. Pellicano led the police, and news cameras, right to them.

He also acquired a mastery of audio technology, and was constantly quoted in Watergate-era articles about detecting wiretaps and electronic bugs. When a tape said to be of the exiled shah of Iran surfaced, The Times hired Mr. Pellicano, “one of the country’s top voice analysis” experts, to authenticate it.

For a private eye selling himself to celebrities, however, Chicago was not as target-rich as Los Angeles. Mr. Pellicano moved west to help John Z. DeLorean, the carmaker and playboy, fight cocaine charges, and the acquittal instantly established him in town.

As his business exploded, so did the range of services he offered. It was an open secret that the menu included wiretapping.

Eavesdropping was nothing new in Hollywood. As early as the 1950s, a small industry of security companies was kept busy sweeping for bugs in the homes and offices of studio executives and cheating husbands. But by the mid-1990s, Mr. Pellicano had revolutionized the practice, inventing a virtually undetectable wiretapping technique.

His wiretaps were installed not inside a target location but outside, in phone company junction boxes, and connected over telephone lines either directly to his office or to a laptop in a nearby apartment that recorded every call. Eventually, he devised a way to operate many wiretaps at once. By the late 1990s, to hear him tell it in conversations with clients, he was tapping phones all over town. (His lawyers did not respond to messages requesting comment.)

Mr. Pellicano’s association with Bert Fields, a litigator known for his confrontational style, gave him entree to a client list studded with stars like Tom Cruise and executives like Mr. Ovitz and the talent manager Brad Grey.

“I don’t care how you get information,” David Moriarty, a lawyer helping Mr. Fields defend Mr. Grey, told Mr. Pellicano in one recorded conversation.

“You’re my kind of man,” the private eye shot back.

(Asked for comment, Mr. Moriarty’s lawyer said that the quotation had been taken out of context, and that prosecutors had cleared his client of any wrongdoing.)

In fact, two cases involving Mr. Grey produced roughly three-quarters of the documents in the Pellicano file.

When the comedian Garry Shandling went up against Mr. Grey, his longtime manager, in 1998, Mr. Fields took Mr. Grey’s case, and before long, the detective was running what prosecutors say were illegal checks on witnesses like Mr. Shandling’s accountant, personal assistant and girlfriend.

Two years later, Vincent Zenga, an upstart screenwriter-producer known as Bo, sued Mr. Grey over credit and profits from the hit horror spoof “Scary Movie.” During a deposition, Mr. Grey squirmed in the witness chair as Mr. Zenga’s lawyer depicted him as an unethical exploiter of other people’s work.

After two grueling days, one of Mr. Grey’s lawyers e-mailed a colleague with a simple message: “Brad wants to hire Anthony Pellicano to investigate Zenga.” The lawyer added a request, to “see if we asked Zenga for his cellphone no. during his depo.”

Mr. Pellicano was quickly on the case, wiretapping Mr. Zenga. What Mr. Pellicano heard was helpful not only in defeating Mr. Zenga in court; it could also be used to stymie his career. When Mr. Pellicano mentioned that Mr. Zenga was doing deals with the Imagine and Miramax film companies, one of Mr. Grey’s lawyers responded, “We ought to be able to put a stop to that.”

In a statement on Friday, Mr. Grey said he believed that everyone on the legal team at Mr. Fields’s law firm, including Mr. Pellicano, “was acting properly, and I knew nothing of the improper activities now alleged against him.” Mr. Fields’s lawyer did not respond to a request for comment.

Michael S. Ovitz saw threats coming from every direction.

In his prime, as head of Creative Artists Agency, he had been considered “the most powerful man in Hollywood.” By April 2002, his new talent and production company was falling apart even as he tried to sell it; his old protégés at Creative Artists were picking off his clients one by one; and he believed that his enemies were using the news media to broadcast and speed his undoing.

On the day he mysteriously asked Mr. Pellicano for a 30-minute meeting — one mentioned nowhere in Mr. Ovitz’s detailed appointment calendars for 2002 — another round of articles had reported the defection of the comedian and actor Robin Williams back to Creative Artists.

Mr. Ovitz later told the F.B.I. that he asked Mr. Pellicano to learn what would be printed about him in the coming months and to uncover embarrassing information about his enemies that he could use against them, documents show. Mr. Ovitz’s lawyer declined to comment for this article.

John McTiernan, the director of blockbusters like “Die Hard” and “The Hunt for Red October,” hired Mr. Pellicano to wiretap his producer.

In the summer of 2000, filming an ill-fated remake of the 1970s cult film “Rollerball,” Mr. McTiernan became convinced that the producer, Charles Roven, was undermining him with the movie’s financiers and executives at Metro-Goldwyn-Mayer.

“I sort of would like to know what he’s saying to the studio, and if there is any place where he’s clearly saying one thing to the studio and saying something else to others,” Mr. McTiernan said in a conversation recorded by Mr. Pellicano.

But the detective offered only generalities. “Jesus Christ,” he said, describing his first round of eavesdropping. “I mean, scheming. Wriggling. Lying. Hypocrisy. Oh, my God. Oh, my God.”

When Mr. Pellicano complained that the sheer volume of calls meant that finding the most valuable information would be like hunting for a needle in a haystack, Mr. McTiernan asked if his computer could listen for the juiciest stuff, specific words or names.

“No, no, no, no, no. That’s in the movies,” Mr. Pellicano said.

Balking at the expense, Mr. McTiernan told Mr. Pellicano to take down the wiretaps. But he asked Mr. Pellicano to save the tapes — just in case.

Mr. McTiernan, who declined to comment for this article, became the first movie-industry casualty of the federal investigation, when he pleaded guilty last year to falsely telling an F.B.I. agent that he had no knowledge of any wiretapping by Mr. Pellicano and had never discussed it with him.

The Perfect Hollywood Persona

Hollywood is sustained by its own peculiar system of mutual advantage. There are the boldface names, their lives often complicated by overlapping personal and professional conflicts, who believe that one call to the right person (and a lot of money) can solve any problem. And then there are the service providers — the agents, lawyers, publicists, assistants and countless others — who stroke the egos of the people paying the bills and get to have their own egos stroked according to their proximity to celebrity. Mr. Pellicano’s consigliere persona, reinforced by the Italian opera on his telephone system, was a perfect fit.

The singer and actress Courtney Love called in 2001. She was fighting to get out of her record contract, fighting the surviving Nirvana musicians over control of the estate of her late husband, Kurt Cobain, and supporting her producer and boyfriend, James Barber, in a child-custody fight. She also feared that a disgruntled former assistant who had hacked into her e-mail account might publish her correspondence with friends like Drew Barrymore, Russell Crowe and even her psychic.

Ms. Love complained to Mr. Pellicano that previous private eyes had turned out to be overpriced frauds, wimps or geeks. She wanted someone who could do it all, she told him, who would use whatever tools it took to get results — from refinement to “baseball bats.” “And I need them all under one roof,” she said.

“Listen, Courtney, if you come to me, that’s the end of that,” Mr. Pellicano said. “My clients are my family, and that’s it.”

Ms. Love indicated her approval.

“There is no other way around it,” he said. “I’m very heavy-handed, honey.”

“I need heavy-handed, baby,” Ms. Love said. “I like talking to an Italian.”

“Sicilian, honey,” he corrected.

“Well, that’s even better.”

The tapes do not tell what Mr. Pellicano ultimately did for Ms. Love, who declined to comment for this article. But for stars who lived and died on image, perhaps his most valuable service was making sure a private problem did not metastasize into a public spectacle. In one conversation in 2001, the comedian and actor Chris Rock showed how attuned he was to the levels of outrage evoked by different types of scandal.

A Stirring of Ambitions

Mr. Rock feared that his rising stardom was being threatened by an accusation that an adulterous one-night tryst two and a half years earlier had not been consensual.

“I’m better off getting caught with needles in my arm, I really am,” he fretted. “Needles with pictures: ‘Here’s Chris Rock shooting heroin.’ Much better blow to the career.”

“I’m not going to let it happen,” Mr. Pellicano assured him. “Just stick with me, baby. I’ll take care of it.”

Mr. Pellicano read from the woman’s police report, saying he was not supposed to have gotten a copy, and then confided that the police were not taking her seriously. (No charges were brought. Mr. Rock declined to comment for this article.)

He also offered some unsolicited career advice, asking about Mr. Rock’s latest movie, a romantic comedy called “Down to Earth,” and cautioning him not to “get too fluffy” in choosing parts. “Look what happened to Richard Pryor,” he said.

Inevitably, Mr. Pellicano’s life stirred his own Hollywood ambitions. In 1993, he collaborated with the director Michael Mann and the writer Cynthia Cidré on a screenplay about a private eye who squashes tabloid stories, wiretaps his prey and charges a $25,000 nonrefundable retainer. (“We’re living in a society where the rich and famous think they can pay for and get away with anything,” one character observes.)

That project stalled, but in early 2002, Mr. Pellicano put together a pitch for a TV series he described as a “Sopranos” for Los Angeles. He sold it to Brad Grey’s company, producer of “The Sopranos,” which took it to HBO.

Worried that the network would rob him of credit and money, Mr. Pellicano received a mollifying call from Mr. Grey.

“They said that they will not give me executive producer credit,” Mr. Pellicano complained.

“Well, I will take care of that. What’s the next thing?” Mr. Grey asked.

“I have to have story credit,” Mr. Pellicano said. After all, he said, he had written much of the pilot script.

When Mr. Grey promised to remedy the situation — and assured him that a $15,000-per-episode fee was respectable in the TV market — Mr. Pellicano regained his usual bravado.

“You’re my friend,” he told Mr. Grey. “If you said, ‘Anthony, I get $10 million, you get $10,000,’ that’s it.” He added: “You are my friend forever. And if you called me up and said, ‘Anthony, we’re passing,’ I’d say, ‘O.K., Brad, what else is going on?’ ”

Still, a moment later, Mr. Pellicano could not resist complaining again about his fee.

“When I did the consulting for the script for Fox with Michael Mann, I got $250,000,” he said.

But that was for a film, Mr. Grey said, adding, “That’s a better business.”

Mr. Pellicano never got his series. It was rejected by HBO sometime in 2002.

Mr. Grey himself left TV for the movie business in February 2005, when he was named chairman of Paramount Pictures. Last week, in his statement, he said: “When you talked with Anthony Pellicano, you immediately saw he was a colorful character, which made his HBO series a great idea then. Ironically, it may be an even better idea today.”

Indeed, Mr. Mann never gave up on making a film about a Hollywood detective, and this month he announced a new script, set on the old MGM lot in the 1930s. Leonardo DiCaprio is set to star, Variety reported, as “the kind of detective studios once relied on to clean up the scandals” of their stars.

Copyright 2007 The New York Times Company

L.A. gang members go union

A rising number of gangbangers are moving into well-paid futures as members of the region's building trade unions.

By Sam Quinones

Times Staff Writer

May 21, 2007

Shortly after his release from prison four years ago, Julio Silva entered the apprenticeship program in the Ironworkers Union Local 433 in La Palma.

To his alarm, he learned that ironworkers called all first-year apprentices "punk."

He had been an East Los Angeles gang member, a drug user, and a car burglar in and out of jail. In that world, a "punk" was someone's prison sex slave.

But Silva tried not to let it bother him. The more he worked at his new job, the more his skills improved. Ironwork became the one legal thing he had done well. It also paid $29 an hour, plus benefits.

Glimpsing a future, Silva's desire to do drugs was replaced by his determination to master the use of sleever bars and spud crescents.

After Silva's first year on the job, the ironworkers simply called him Julio.

"I never thought my history would allow me to have something more than $7 an hour," said Silva, 37. "I don't see this happening nowhere else but in the union. It's given me the best opportunity of my life."

Silva is among a large and growing number of Southern California gang members who have joined building-trade unions over the last decade as construction work has boomed. These good-paying jobs were once reserved for those with family connections, as fathers recruited sons.

But today, beset by nonunion competition and an aging membership, unions have stepped up recruitment in minority enclaves where many young men have criminal pasts. Now homeboy recruits homeboy.

Members of Dog-patch, in Bellflower, and West Side Wilmas, in Wilmington, are in the Ironworker Union Locals 416 and 433. Members of the 204th Street gang in the Harbor Gateway area of Los Angeles are in the Sheet Metal Workers Local 105. And members of the South Side 18th Street Tiny Diablos are Teamsters.

"We probably make up the majority of the workforce now," said Albert Frey, once a Crip and crack dealer, now an apprentice with the Steam-Refrigeration-Air Conditioning-Pipefitters Union Local 250.

No one knows exactly how many gang members are in the building trades because the unions have stopped asking about recruits' backgrounds. Some unions even will allow a man to remain a member while in prison — as Frey did for two years — if he pays his monthly dues.

"This is our gang now," Frey said, "in a positive way, though."

'Almost like a lodge'

For decades, membership in the building trades was tightly restricted. Unions controlled most of the work sites throughout Southern California and kept their numbers low.

Most members were white. But even that wasn't enough to get into a union.

"You damn near had to be a relative of somebody's," said Jim Watkins, business manager of the Heat and Frost Insulators Local 5 in Azusa, who joined in the 1950s. "It was tightknit, almost like a lodge."

But by the 1980s, many contractors were bridling at union control. Nonunion contractors had emerged to compete for jobs. Among their employees were inner-city youths and ever-greater numbers of illegal immigrants.

By the early 1990s, veteran union members were retiring and membership fell, while work and nonunion contractors flourished.

"When we controlled 80% of the work, we were very cocky," Watkins said. "When we went down to 20%, we started reevaluating."

A new generation of union leaders opened up membership to almost anyone who wanted to work hard. They began recruiting aggressively in the inner city. Some stopped requiring a high school diploma or even that apprentices speak English.

Among those who responded were men with gang and criminal records and few options.

"These are the people who are undermining [unions] by going to work for nonunion contractors at much lower wages, with no benefits," said Sharon Delugach, staff director of the UCLA Downtown Labor Center. "Nobody likes change and these [union] guys like change less than anyone, but it's in their self-interest" to recruit in inner-city neighborhoods.

The Heat and Frost Insulators local was 65% white in the late 1970s. "Now it's 65%" nonwhite, said Tom Gutierrez, who joined the union in 1980 and now is apprenticeship coordinator. "We had to start branching out" if membership was to grow, he said.

Gutierrez and others now fill their schedules with trips to high schools and career fairs. Lilly Rodriguez, apprentice coordinator for the Painters and Allied Trades Union, has sought recruits at probation offices.

"What I tell ex-felons is, you can never say the union didn't give you an opportunity to be a productive citizen," Rodriguez said.

But there are problems with the more open approach. Since Sept. 11, many sensitive work sites — including government buildings, shipyards, chemical and nuclear plants, police departments and schools — require extensive background checks of workers. Those checks screen specifically for illegal immigrants and ex-convicts.

Not all gang members thrive in unions. Some take orders poorly, chafe at getting up at 4:30 a.m. and are happier selling drugs.

"Some guys, it's hard to get the 'hood out of them," Gutierrez said.

Even those who make it into the apprenticeship program and go on to earn good money don't always leave their gangs. For years, several 204th Street gang members, now sheet-metal union workers, hung out every weekend in their old neighborhood in Harbor Gateway, though their union jobs allowed them to buy homes as far away asthe Inland Empire.

"It's hard for you to rip yourself away from it," said Armando Valadez, 33, who spent his first three years as an apprentice heat-and-frost insulator.

"Every Friday [after work] I'd go and see some of my homies," Valadez said. "I had a son, a wife and a union job. Still the gang was stronger."

Frey, the former Crip, was facing a drug possession charge when he joined the Steamfitters. He was convicted about a year into his apprenticeship program and sentenced to two years in prison.

He spoke with union officials, who gave him a leave of absence.

In prison, "I had time to sit down and say, 'Where are your priorities, Albert?' " said Frey, 40, who is married with three children. "You're getting too old."

Since his release last year, Frey said, he has left his gang activities and drug dealing behind and is now determined to finish his apprenticeship.

For those with prison records, he said, the building trades "are the only places that accept us."

Union leaders say most gang members leave their affiliations at home and that work sites are remarkably free of street rivalries. The Ironworkers Union, in particular, has gone after gang members and parolees for work that is hard and often dangerous, requiring men to labor on bridges and soaring office towers.

"They take that street toughness that puts them into Corcoran or Pelican Bay [state prisons] and put it into this," said Robbie Hunter, president of the Ironworkers Union. "The electricians require algebra and all that. What we require is no fear. They're perfect for us."

Making a new life

One of those men was Julio Silva.

Growing up in a fatherless family in Boyle Heights, Silva joined the Evergreen Street gang when he was 12.

He spent his high school years in the California Youth Authority followed by a decade of gangbanging and drug use. Married with five children, he lived mostly on general relief, Section 8 housing subsidies and the car stereos he stole.

In 2002, he was convicted of drug possession and imprisoned for 18 months.

Upon his release, Silva spent three weeks at Homeboy Industries, the Boyle Heights nonprofit run by Father Gregory Boyle that finds work for gang members. One day, a worker was shot to death painting over gang graffiti.

In response, building unions began recruiting gang members as part of their broader efforts in inner-city neighborhoods. Silva was there when Hunter showed up looking for potential ironworkers.

"I didn't know what was involved," Silva said. "I just waved my hand."

A month later, he was a pre-apprentice, installing printing machinery at the Los Angeles Times' printing plant. From there, he got his first real ironworker job — helping build a post office near Chinatown.

"It was scary," he said. "I didn't know what I was getting involved in. [But] the faces, they all seemed to me they had been in the same background — prisons, gangs, lockdowns."

In time, Silva finished his work for a general equivalency diploma, which the union required. It also mandated that he have a driver's license, which he had lost 16 years before for drunk driving. So for 18 months, he went to DUI class to regain his license.

Meanwhile, he attended ironworker school. He remarried, to Silvia Cantu, a woman from his old neighborhood.

She helped him study, making flashcards to test his math skills, ironworker vocabulary and the hand signs needed to communicate with crane operators.

He got custody of his five children. He and Silvia, who live in a two-bedroom apartment, now raise them along with her daughter and their son.

Silva is in the last six months of his four-year apprenticeship. As a journeyman, his wages and benefits will eventually reach $49 an hour.

"My eyes get a little watery, where I was a few years ago and where I'm at now," he said. "It's like another opportunity of life. I'm proud to be an ironworker."



Conference on Undocument Students

Effect of illegal status on college students detailed

By Rong-Gong Lin II

May 20, 2007

What does it mean to be an undocumented immigrant studying at a California college?

According to students who appeared Saturday before a panel of California lawmakers at UCLA, it's a relentless scramble to secure enough money to attend school.

It's not only hard to find a job, but it's also extremely difficult to secure financial aid or scholarships to help pay for tuition, causing some to drop out to save up, the students told five legislators: two state senators and three assemblymen.

Paola Fernandez, 21, said she's unsure whether she'll have enough money to attend UC Santa Barbara in the fall.

Fernandez, whose parents brought her to the Central Valley from Mexico illegally when she was 4, just graduated from a Kern County community college, where she was a top student.

Sophomore Ernesto Rocha, 20, who crossed the border when he was 8, sometimes takes his sleeping bag to a UCLA library or a friend's nearby apartment because he can't afford to live on campus.

He juggles classes with a 22-hour workweek and a bus and train commute from his family's home in Long Beach that takes two hours each way.

Recent UCLA graduate Tam Tran, 24, said she gave up an offer for graduate school because she couldn't afford it.

"Next week, I'll start job hunting," said Tran, the daughter of Vietnamese refugees who has lived in the United States since she was in first grade.

"Since I can't work legally, I know the job I'm going to look for isn't the one I'll want to have," she said. "The job I want makes use of my college degree."

Saturday's conference was part of an effort by UCLA students to raise more awareness about the plight of undocumented collegians, focusing particularly on those who arrived illegally as infants or very young children.

Some of the students said their parents only disclosed their undocumented status to them when they were applying to college.

The students on the panel voiced support for a proposal in Congress, known as the Dream Act, that would give illegal immigrants who arrived as children and are headed for college or the military a way to earn citizenship more quickly.

Opponents of the legislation have said the measure would reward illegal immigration.

The Dream Act was included in a compromise unveiled by a bipartisan group of U.S. senators Thursday, giving hope to the students at the conference that the measure has a chance to pass this year. According to the National Immigration Law Center, about 65,000 high school students who graduate each year would qualify for the Dream Act.

California lawmakers recognized the financial plight of undocumented students in 2001, when legislation passed granting them in-state tuition if they graduated from a California high school.

State Sen. Gil Cedillo (D-Los Angeles), who attended the conference, has reintroduced the California Dream Act, SB 160, which would allow undocumented students to apply for California scholarships and financial aid.

"We must have these people be successful, if California is to remain a prosperous state and remain competitive in the global economy," Cedillo said.

Gov. Arnold Schwarzenegger vetoed a similar bill that landed on his desk last year.

"While I do not believe that undocumented children should be penalized for the acts of their parents, this bill would penalize students here legally by reducing the financial aid they rely on to allow them to go to college and pursue their dreams," the governor wrote.



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Saturday, May 19, 2007

Dilemmas of MOMA Moguls

Parallel Paths Diverging Sharply

May 17, 2007

On a hot evening this week in the Museum of Modern Art’s garden, Marie-Josée Kravis, the museum president, and her husband, Henry, played host to more than 900 guests who mingled near two giant Richard Serra sculptures. Her presence was cool and reserved, and her outfit of a shimmering sequin top and dark slacks struck a conservative tone amid the sun-fired skin and tummy-hugging gowns that the wives of other moguls favored.

Mayor Michael R. Bloomberg was there, as was Martin Scorsese — clad in tuxedos, as were most other men. The buyout executives Leon Black and Stephen A. Schwarzman huddled in a corner, and Bruce Wasserstein, the chairman of Lazard, chatted with Richard D. Parsons, the chief executive of Time Warner.

Part society gala, part networking session for the city’s business titans, it was the kind of event that Ms. Kravis, who is 57, has been working with verve and diligence since her days as a young economist in Canada, making her the toast of Ottawa, Montreal and now New York. With her smile sparkling, she was far removed from the pained testimony she gave this month as a prosecution witness in the trial of her friend Conrad Black, the former chief executive of Hollinger International, where she served as board member for eight years.

Part of the Canadian establishment in the 1980s, they emerged together in New York business and social circles in the 1990s. Today, Ms. Kravis remains a pillar of New York society, while Mr. Black, if convicted, faces a life prison term.

With its mix of high society and big business, the MoMA event might have appealed to Mr. Black.

“The essence of social life," he said in an interview in 1989, “is to make your contacts as interesting as they can be. Many people are intellectually stimulating. Some are not, but they happen to be important. So there is some utility in my knowing them.”

Marie-Josée Kravis, who would not comment for this article, was indeed a person worth knowing — a charter member of the Canadian establishment, whose conservative politics and glamorous countenance gave her entree to numerous Canadian boardrooms throughout the 1980s. In 1994, her marriage to Mr. Kravis, the buyout executive, gave her an additional luster, and several months later she accepted an offer from Mr. Black to join the Hollinger Inc. board.

Since his early days as a newspaperman in Montreal, Mr. Black has blended his business and social ambitions, packing his board with social and political dignitaries, and prosecutors say he charged to his company part of a birthday party and household expenses for a Park Avenue apartment and made liberal personal use of the company’s private plane. Prosecutors say Mr. Black and others took more than $60 million from his company, and engaged in fraud by using Hollinger’s money to help finance such a grand lifestyle.

In today’s era of increased scrutiny, corporate spending on social and personal matters, a once blurred line, can now be questioned by directors, shareholders and in some cases, regulators and prosecutors.

Such indulgences can also be tiresome, as Mr. Black himself seemed to suggest when he sent an e-mail message to an associate in 2001 expressing some exasperation at having to buy a $15,000 table at a Museum of Modern Art party in honor of Ms. Kravis.

“I suppose in accordance with our longstanding custom of supporting our directors that we’re stuck with this,” he wrote. “These New York charities are terribly rapacious.”

In fact, as evidenced by some long faces and slack jaws as the evening wore on at the MoMA party, getting ahead in society can be hard work.

“Go very light on the vices such as carrying on in society,” counseled Satchel Paige, the baseball pitcher and aphorist. “The social ramble ain’t restful.” Now facing 100 years in prison, Mr. Black might well agree.

Until recently, Ms. Kravis and Mr. Black pursued a similar path.

With their taste for conservative politics, hunger for social advancement and ease in corporate boardrooms, Ms. Kravis and Mr. Black left their Canadian origins in the past.

How sharply the symmetry of their respective ascents has diverged was displayed vividly this month in a Chicago courtroom.

On the stand was Ms. Kravis, who at various times has served on the audit committee of four major corporate boards in addition to Hollinger. Watching her intently was Mr. Black.

Subjected to a barrage of pointed questions by Mr. Black’s lawyer, she admitted to missing some board meetings, to not being a financial expert as defined by new Sarbanes-Oxley requirements for audit committee members, and most crucially, to not having read parts of documents that disclosed the noncompete payments made to Mr. Black. Other audit committee members who testified were Richard Burt and former Gov. James R. Thompson of Illinois.

Legal analysts say that by admitting that she was shown papers that described the payments, she may have undercut the prosecution’s case that he schemed to steal the money.

But for Mr. Black, the sharpest cut of all may have come with the low regard she seemed to show for the 60th-birthday party he gave for his second wife, Barbara, in 2000. Held at La Grenouille, a restaurant that caters to tastemakers on the Upper East Side, it was a lavish bid by Mr. Black to cement his place in Manhattan society, and those invited included Oscar de la Renta, Dixon Boardman and Barbara Walters.

Prosecutors contend that this was a social gathering, not a business one as Mr. Black contends. On the stand, Ms. Kravis agreed: “It was a birthday celebration,” not a business event, she said. And had she attended the party?

“Only the last 15 or 30 minutes,” she replied flatly. “I had another obligation that evening.”

For a woman used to wielding her influence in the privacy of closed boardrooms and evening dinner parties, the Black trial was a rude blast of publicity. But it was not the first time she had been thrust uncomfortably into the spotlight.

In 1976, Ms. Kravis, then known as Marie-Josée Drouin, was a 27-year-old economist working at the Hudson Institute in Canada. According to The Globe and Mail, a Canadian newspaper, Ms. Drouin became embroiled in a controversy when she flew free of charge to a holiday in Mexico with Jean-Pierre Goyer, a cabinet minister in the government of Pierre Trudeau whom she had previously served as an executive assistant. Such a privilege was supposed to be accorded only to family members. In offering an explanation, Mr. Goyer, who was living apart from his wife although not legally separated, said Ms. Drouin, who was single, was his common-law wife.

B. Bruce-Briggs, the author of “Supergenius,” an independently published biography of Herman Kahn, the founder of the Hudson Institute, recalled that Ms. Kravis escaped the headlines by locking herself in her house in Ottawa for 72 hours.

“She was embarrassed,” he recalled. “But she had a stiff upper lip and she adjusted her makeup and moved on.”

Her willingness to work long hours, an ability to communicate on television or in print in French and English and a well-honed glamorous side would make Ms. Kravis indispensable to a series of powerful men who would support her career over the coming decades. They included Mr. Kahn; Paul G. Desmarais Sr., the head of one of Canada’s wealthiest families; and the former prime minister, Brian Mulroney, as well as Mr. Black.

“I knew she would go far,” said Claude Frenette, a financial executive who gave Ms. Drouin her first job as a graduate of the University of Ottawa.

She became head of the Hudson Institute in Canada, and her public stature grew through a serious of columns that she wrote for The Financial Post.

In 1987, she joined the board of the Canadian Imperial Bank of Commerce, perhaps the most prestigious corporate board in Canada; Mr. Black had long been a member.

According to her testimony, it was through the bank’s board that she came to know Mr. Black. She soon became part of his expanding social world, attending such luminous events as the annual Hollinger dinner in 1989, when President Ronald Reagan spoke.

In 1994, after her marriage to Mr. Kravis — for both of them it was their third — Ms. Kravis moved to New York.

People who know Mr. Black say he is an imperious, headstrong man and not one to take criticism easily. Yet in 2003, as Hollinger came under scrutiny, it was Ms. Kravis who, according to her testimony, advised him “to be a little more humble” toward his antagonists. She was, however, one of the first major directors to resign as the scandal broke, doing so in late 2003 in a serious public relations blow for Mr. Black.

As she acknowledged on the witness stand, her role in Hollinger’s downfall has been embarrassing. On the stand, she admitted to receiving a notice from the Securities and Exchange Commission saying that she might be under investigation, although the commission did not bring any action against her. Stung by the Hollinger experience, she has resigned from her major corporate boards, including Ford Motor, Vivendi and IAC/InterActiveCorp.

“She was an excellent director,” said Barry Diller, the chief executive of IAC. “But she said this has become an unpleasant process.”

Now, she has assumed the full trappings of the billionaire’s wife: she is an active trustee and past chairwoman of the Robin Hood Foundation and is in the middle of a five-year term as president of MoMA, where she has used her corporate ties to energize and deepen support for MoMA from business leaders.

“Marie-Josée is a serious person,” said Jerry I. Speyer, a real estate executive and fellow MoMA trustee. “And she is not a lady who goes to lunch. She is successful in her own right and not just because she married Henry.”

She and Mr. Kravis split time among homes in Southampton, N.Y.; Paris; and New York.

For some close followers of Mr. Black, it was this rapidly elevated status that enhanced the couple’s taste for the luxurious lifestyle that would prove to be his undoing.

“The Kravises were a role model for Conrad and Barbara,” said Peter C. Newman, a biographer. “It was the jets, it was Palm Beach and it was New York society where they wanted to be accepted. And that is where the trouble started, because Marie-Josée’s husband was a billionaire and Conrad was only a millionaire.”

Copyright 2007 The New York Times Company

Wednesday, May 16, 2007

Krugman Torn On Trade

May 14, 2007

Divided Over Trade


Nothing divides Democrats like international trade policy. That became clear last week, when the announcement of a deal on trade between Democratic leaders and the Bush administration caused many party activists to accuse the leadership of selling out.

The furor subsided a bit as details about the deal emerged: the Democrats got significant concessions from the Bushies, while effectively giving a go-ahead to only two minor free trade agreements (Peru and Panama). But the Democrats remain sharply divided between those who believe that globalization is driving down the wages of many U.S. workers, and those who believe that making and honoring international trade agreements is an essential part of governing responsibly.

What makes this divide so agonizing is that both sides are right.

Fears that low-wage competition is driving down U.S. wages have a real basis in both theory and fact. When we import labor-intensive manufactured goods from the third world instead of making them here, the result is reduced demand for less-educated American workers, which leads in turn to lower wages for these workers. And no, cheap consumer goods at Wal-Mart aren’t adequate compensation.

So imports from the third world, although they make the United States as a whole richer, make tens of millions of Americans poorer. How much poorer? In the mid-1990s a number of economists, myself included, crunched the numbers and concluded that the depressing effects of imports on the wages of less-educated Americans were modest, not more than a few percent.

But that may have changed. We’re buying a lot more from third-world countries today than we did a dozen years ago, and the largest increases have come in imports from Mexico, where wages are only about 11 percent of the U.S. level, and China, where wages are only 3 percent of the U.S. level. Trade still isn’t the main source of rising economic inequality, but it’s a bigger factor than it was.

So there is a dark side to globalization. The question, however, is what to do about it.

Should we go back to old-fashioned protectionism? That would have ugly consequences: if America started restricting imports from the third world, other wealthy countries would follow suit, closing off poor nations’ access to world markets.

Where would that leave Bangladesh, which is able to survive despite its desperate lack of resources only because it can export clothing and other labor-intensive products? Where would it leave India, where there is, at last, hope of an economic takeoff thanks to surging exports — exports that would be crippled if barriers to trade that have been dismantled over the past half century went back up?

And where would it leave Mexico? Whatever you think of Nafta, undoing the agreement could all too easily have disastrous economic and political consequences south of the border.

Because of these concerns, even trade skeptics tend to shy away from a return to outright protectionism, and to look for softer measures, which mainly come down to trying to push up foreign wages. The key element of the new trade deal is its inclusion of “labor standards”: countries that sign free trade agreements with the United States will have to allow union organizing, while abolishing child and slave labor.

The Bush administration, by the way, opposed labor standards, not because it wanted to keep imports cheap, but because it was afraid that America would end up being forced to improve its own labor policies. So the inclusion of these standards in the deal represents a real victory for workers.

Realistically, however, labor standards won’t do all that much for American workers. No matter how free third-world workers are to organize, they’re still going to be paid very little, and trade will continue to place pressure on U.S. wages.

So what’s the answer? I don’t think there is one, as long as the discussion is restricted to trade policy: all-out protectionism isn’t acceptable, and labor standards in trade agreements will help only a little.

By all means, let’s have strong labor standards in our pending trade agreements, and let’s approach proposals for new agreements with an appropriate degree of skepticism. But if Democrats really want to help American workers, they’ll have to do it with a pro-labor policy that relies on better tools than trade policy. Universal health care, paid for by taxing the economy’s winners, would be a good place to start.

Copyright 2007 The New York Times Company

Tuesday, May 15, 2007

Hope for Sarkoland

May 15, 2007
Op-Ed Contributor
Friend or Faux?

Dreux, France

NICOLAS SARKOZY, who will take over the presidency from Jacques Chirac tomorrow, has often been dubbed by the left in France as “Sarkozy the American.” His victory has also been greeted in American conservative circles as an unprecedented break with the “French disease” (welfare state, 35-hour workweek, national arrogance, anti-Americanism, etc.).

Certainly, Mr. Sarkozy is pro-American and anti-bureaucracy and has no problem with hobnobbing with the rich, as shown by his luxury (and very short) vacation on a billionaire’s yacht in Malta after his election. He also repeatedly claims that he will make a clear break with Mr. Chirac’s policies.

But feelings and gestures don’t make a policy. And there is no neoconservative or Thatcherist revolution in sight for France.

Mr. Sarkozy may present himself as what the French call a “libéral” on the economy — that is, someone who favors a free market — but when he was the finance minister, the taxes and social charges paid by business did not decline, he blocked foreign takeover bids and he bailed out an ailing French company, Alstom, with taxpayer money. As president, he will try to give more flexibility to business, but without dismantling the minimum wage; to give more autonomy to the universities, but without privatizing them; to redefine the welfare state, but without eliminating it; to decrease the power of the unions, but without snubbing them.

This does not amount to a revolution but to a continuation of the French economy’s bumpy path since 1993, when Édouard Balladur became prime minister and tried to push a libéral economic agenda. The general deregulation that American conservatives envision isn’t in the works. So far, European Union rules have been much more important in fostering a liberalization of the French economy than any French politician.

This is not a matter of hypocrisy, but of political will. Mr. Sarkozy may be a libéral on the economy, but he is not a political libéral; he may want to downsize the bureaucracy, but he favors a strong state. One of his speechwriters, Henri Guaino, is a Gaullist of the left who advocates nationalism and state interventionism. Surely the declarations of Mr. Sarkozy against the European Central Bank’s tight monetary policy and in defense of a weaker euro are more interventionist than laissez-faire.

There are also many domestic constraints. True libérals are a rarity in France, both on the left and the right. To be elected, Mr. Sarkozy had to reach out to very different layers of French society, and it overwhelmingly favors a welfare state. There is a real danger of a coalition of the discontented, as happened in 1995 when striking unions and students paralyzed the country for weeks.

Mr. Sarkozy has also been credited for injecting some multiculturalism into a French society that prefers assimilation. But the president-elect has toned down his support for a greater role for religion in the public sphere: this is a bow to reality, since political (if not ideological) secularism pervades most of the left and right.

The same applies for foreign policy. Although Mr. Sarkozy is not known as personally self-effacing, France will certainly cease to teach lessons to the world in the Gaullist tradition. That is more a matter of age than of ideology. The Gaullist attitude still runs strong among the older members of the political elite, but it is less and less common among the members of younger generations like the 52-year-old president-elect.

Still, although Mr. Sarkozy will certainly adopt a lower profile in foreign policy, that does not mean that he will endorse the American neoconservative strategy. First, that strategy is dead. Second, even when there were enough people on both sides of the issue in France to have a debate about the United States intervention in Iraq, Mr. Sarkozy, while condemning the anti-American tone of Mr. Chirac as arrogant, never advocated joining the American coalition. He recently suggested that French troops might leave Afghanistan, hardly a shift to the American side.

He is obviously a staunch friend of Israel and lacks experience with the Arab world, but his stand on the Israeli-Palestinian conflict, beyond the emotions, is the traditional French position (the two-state solution through bilateral negotiations). On Iran he criticized the recent softening of the French stance, but that merely means that he will return the government to advocating economic sanctions. By categorically opposing the entry of Turkey in Europe, he breaks with the United States policy, but he is in tune with French public opinion.

Although the new cabinet has not yet formally been appointed, the names given out by Mr. Sarkozy’s close circle confirm that it will hardly be a neoconservative government: some former leftists (Bernard Kouchner, a founder of Doctors Without Borders, and former Foreign Minister Hubert Védrine) some members of the floating center and some pro-environment conservatives (former Prime Minister Alain Juppé).

The only suggested minister associated with the “moral right,” Christine Boutin, opposes same-sex marriage but is also well known for advocating a “right for housing” for the homeless. These names have produced no uproar on the conservative side: press comments and public opinion seem to endorse such a centrist move.

Americans misunderstand what a “conservative” France could be: it does not mean a drastic shift toward a free market and traditional moral values, but a balance between a welfare (and strong) state and a more flexible labor market. Under “Sarkozy the American,” France will remain very French.

Olivier Roy, a professor at the School for Advanced Studies in the Social Sciences in Paris, is the author of “Globalized Islam.”

Copyright 2007 The New York Times Company