Shadow Government

Panama Canal Deadlock Could Cost U.S. Billions

News that negotiations have broken down over a payments dispute in the massive $5.2 billion project to expand the Panama Canal is devastating news for U.S. exporters and only adds to the "disarray" narrative on U.S. trade policy.

The cash-strapped Spanish-led consortium that is building a new lane says it is stopping work due to the Panamanian refusal to pay an additional $1.6 billion in cost overruns. The Panamanians say it is a breach of contract. The consortium is threatening "years" of arbitration; the Panamanians say they will not yield to blackmail.

The only thing certain is that further delays in the project's completion, which has already been pushed back from this year -- the 100th anniversary of the canal's completion -- to as late as 2015 and beyond will continue to cost the U.S. economy billions of dollars, at a time when seaborne trade is essential to the United States' economic resurgence.

What is also unconscionable is that today's debacle was foretold in 2009, when Panama awarded a $3.12 billion contract to the consortium led by a nearly bankrupt Spanish company, stunning observers. According to a representative of the U.S. conglomerate Bechtel, one of the rejected bidders, the winning bid wasn't even enough to pour the concrete for the massive project.

A year later, Panama's vice president confirmed the worst. According to a WikiLeaked State Department cable, he told U.S. officials, "The canal expansion project is a disaster," and "You don't mess around with something as important as the canal. When one of the bidders makes a bid that is a billion dollars below the next competitor, then something is seriously wrong."

Indeed, the stakes are huge. The new lane under construction will accommodate so-called post-Panamax ships, vessels too large to traverse the original canal. These behemoths are able to carry almost three times the cargo that ships can currently carry through the canal, dramatically improving commerce with Asia and other locales. Every industry associated with overseas trade up and down the line has been furiously preparing for the new opportunities resulting from the expanded canal.

Shipbuilders have been taking large orders for post-Panamax ships; U.S. ports along the Gulf Coast and Eastern Seaboard have been investing hundreds of millions of dollars to upgrade their facilities; and energy companies have been investing millions more in natural gas exploration and terminals in preparation to export liquid natural gas to Asia. In New York and New Jersey, for example, authorities are spending $1.3 billion to raise the Bayonne Bridge by nearly 60 feet to allow enough clearance for the big ships. In short, big, big money is in play.

It is for this reason that U.S. Vice President Joe Biden made it a point last November to tour the canal project, where he told Panamanian President Ricardo Martinelli, "Modernizing the canal, Mr. President, is an investment in your future, but it is also a consequential investment in the future of the United States of America."

Panama's stewardship of the canal since the United States turned over control in 2000 has been nothing short of exemplary, but the decision to shun Bechtel and another strong European consortium that put in higher bids has backfired badly. And there are many questions. For example, did the fact that the winning consortium included a Panamanian company with family ties to a former canal administrator play a role in accepting the lowball bid? Secondly, what role did politics play in the selection process? Was the fact that Bechtel is a U.S. company adversely affect its chances, given the long and, to many Panamanians, controversial association of the canal with the United States?

Given the history and stakes involved in the project -- in terms of the costs to global trade and the U.S. economy -- these are not impertinent questions. Barack Obama's administration ought to press for answers. Because each day the canal expansion is delayed means added losses for the United States, including the loss of export markets to increase production, investment, and jobs, and losses for U.S. ports and others needing to recoup infrastructure upgrade costs. The Obama administration certainly is not looking for another headache abroad, but, regardless, another one is here.


National Security

Finally, the Leader the Air Force Deserves Has Arrived

Defense Secretary Chuck Hagel's selections for top defense jobs have so consistently been mediocrities, such third-string players intellectually and managerially, that defense experts are now speculating that the White House wants a weak Department of Defense. The shining exception to this rule has been Secretary of the Air Force Deborah Lee James, and her handling of the crisis in the nuclear missile force is a welcome reminder of how important a well-run defense organization is to our country.

James comes to the Air Force after serving as a top executive at a profitable and intellectually serious defense contractor, SAIC. The former president of the firm's technical and engineering sector, she brings to her current responsibilities an understanding of the business and technology that are DOD's business. Moreover, she has run a large organization well. Those skills have been showcased in how she has responded to the first mess to land on her desk as Air Force secretary.

There is a crisis in the U.S. nuclear mission, and the locus of that crisis is the Air Force. That has been known since at least 2007, when a B-52 mistakenly loaded with armed nuclear weapons flew across the country. Seven months later, four ICBM nose cone fuses were mistakenly shipped to Taiwan. And now, airmen responsible for missile safety and launch are cheating on their proficiency testing.

Even in light if yesterday's revelations about cheating on proficiency tests among trainers for nuclear propulsion systems -- a much less worrisome prospect than operators of nuclear weapons -- the same kinds of problems seem to not exist in the Navy's nuclear force. To a much greater degree than the Air Force, the Navy considers its nuclear mission central. When Navy leaders talk about their service, responsibility for the nation's nuclear deterrent is central, the funding for it fenced from reductions even in difficult budget straits. One experienced sailor suggested to me that the difference also lies in organizational choices and inner-service politics: For the Navy, the nuclear mission is vested in a dominant, highly influential tribe known for their irritating attention to detail and zero-defect mentality, namely, the submarine community. The weapons' security lies in the hands of the Marines, who take the mission, the setting, and adhering to standards incredibly seriously. 

But the Navy, too, according to its own internal review, has experienced an erosion of oversight, inspections, and standards for the nuclear mission in the past fifteen years. Between the current scandals and slipping standards at the Navy, attention to the nuclear mission has waned across the services and responsibility for it resides with senior political leaders. After the end of the Cold War, presidents and defense secretaries have mostly emphasized nuclear dangers and the need for nuclear weapons reductions rather than their enduring contribution to our country's safety. And no administration has done this with more conviction than President Obama's.

Which makes James's positive engagement all the more notable. When the cheating scandal at Malmstrom Air Force Base broke, she actually tried to find out what happened, visiting the post and talking to airmen about the mission, the command climate, getting their sense of what is occurring.  

She did not try and downplay the extent of the cheating nor pretend it is anything short of catastrophic to have 20 percent of a unit complicit in cheating. Instead, she personally took charge of conveying the damaging information, in addition to explaining what she considers the nature of the problem: "The need for perfection has created a climate of undue stress and fear...I heard repeatedly that the system can be very punitive, come down very hard in the case of even small, minor issues that crop up, but not equally rewarding or incentivized for excellent behavior or good work."

James conveyed clearly and simply a complicated analysis of the problems she sees in the Air Force's performance of the nuclear mission, which is the drive to perfection. Malmstrom's cheaters were motivated by getting a perfect score rather than a passing grade. That dynamic can be positive in many contexts, but, in James' assessment of the problem, "commanders are using these test scores to be a top differentiator, if not the sole differentiator on who gets promoted." By optimizing to test scores as the primary means of evaluating airmen's performance, the Air Force leadership has conveyed that devotion to duty, risk management, leader development, building robust teams that compensate for one others' weaknesses are of no importance -- when those skills are prized in every military specialty. Organizations get the behavior they incentivize and reward.

She also made the important observation that the ICBM force has lost the distinction between training and testing -- it's ok to make mistakes in training, that's essential to learning. The zero-defect environment necessitated by the danger associated with nuclear weapons handling has burgeoned into a zero-defect environment even for the training that develops those skills. And that has resulted in diminished skills overall.  

She also commendably took some responsibility for the gap between leadership rhetoric and actual priorities as conveyed by the apportionment of their time, talent, and money: "I also heard that although we, as senior leaders, talk about the importance of the mission that the team in the field doesn't always see that talk backed up by concrete action."  By doing so, she proved herself an even better leader than former Defense Secretary Robert Gates, who dealt with the Air Force's failures punitively but without giving any positive attention to either the mission or the airmen performing it.

The chapter of Gates' memoir that recount the issues in the Air Force is titled "One Damn Thing After Another," and that pretty well sums up his all sticks, no carrots approach toward fixing the particular. After the B-52 incident, he completed a weapons inventory, launched an investigation, relieved commanders, and sent a former Air Force chief of staff to conduct an independent review of the broader issues of nuclear weapons handling and security. That review concluded that the problem was "a general devaluation of the nuclear mission and those who perform the mission." After the Taiwan incident, Gates initiated a second inventory and a second outside review of the Air Force with instructions to make "accountable anyone at any level." That report concluded there had been "an overall decline in Air Force nuclear weapons stewardship, a problem ... not effectively addressed for over a decade." Gates thought those findings required "immediate and dramatic action" and fired both the secretary of the Air Force and its chief of staff. He then empaneled yet another senior-level task force to recommend improvements in nuclear weapons safety. To its credit, the panel identified neglect in a number of other sectors, including in the Office of the Secretary of Defense. But beyond visiting three air bases to explain the firings, Gates made, no positive efforts, nor did he take any responsibility for his direct subordinates, whom he describes as capable but failing to understand how the nuclear mission should mesh with other priorities.

James is taking positive efforts and is publicly and privately reinforcing where the nuclear mission fits in the service's priorities. The Air Force is now examining how to better align "incentives, accolades and recognition" for the airmen involved in our nation's nuclear strike force. This is a welcome and long overdue approach to motivating and rewarding those airmen whose duty is our country's ultimate deterrent. She will also need to hold the uniformed leaderships' feet to the fire in order to meet the standards she is setting. Otherwise, the institutional culture will continue to her fixes for the problem. The priorities will need to be visible in promotions, selection for top jobs, the standing of the nuclear community within the tribes of the Air Force, where the service encourages its talented airmen to serve, and how the secretary herself spends her time. 

Most damage control efforts by the Obama administration blame their predecessors or their political adversaries and promise accountability that never materializes. James is a refreshing gust of good management in a department and an essential national security mission desperately in need of it.

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