Time the British woke up to the crisis in Europe

It is a commonplace for Britain’s politicos to sadly shake their heads and complain that the Euro crisis demonstrates a woeful lack of political leadership.  Regardless of the fairness of this charge in respect of Angela Merkel, say, it clearly has resonance for Britain’s own leaders.  There seem to be two camps: ravingly impractical Eurosceptics, and sheer paralysis from everybody else.  The mood amongst Europhiles (as I witnessed at fringe meeting at the Lib Dem conference) is akin to deep depression.  It is time for this to change.

To be fair some key players have been showing something less than paralysis – George Osborne and Nick Clegg have both been conspicuous in raising the seriousness of the situation with their international colleagues – but their pronouncements are hardly more helpful than anybody else’s.  They aren’t bringing anything to the party and they aren’t trying bring our own public alongside.

The first point is that the Euro crisis has serious implications for Britain, much though most people seem to think it is happening to somebody else.  This is for two main reasons.  First is that this country would be caught up in any financial disaster.  Our oversized banks are deep in the mess; Euro zone countries are vital trading partners for a country very dependent on trade – especially given that international financial services are so important to us.  Our fragile attempts at recovery risk being completely blown off course.  Forget Plan B if this lot breaks.

The second reason it matters to Britain is that resolution of the crisis could take the European Union in a direction that is against our interests.  Britain leads the single market wing of the union: the chief Euro zone countries are more protectionist in their instincts.  We risk being shut out of the design of critical architecture – much as the Common Agriculture Policy was put together in our absence.

How to proceed?  We need to tackle the dark spectre head on: the best resolution of the crisis involves changes to the European treaties.  To change the treaties will require a referendum here (let’s not weasel out of it this time).  If we face up to that challenge now, it will show real courage, and help get things moving.

But, of course, we would need to see something in return.  Changes to the treaties that would further our interests.  These need to be to promote the single market, to protect London (and Edinburgh) as centres for financial infrastructure, and to reduce unsightly bureaucracy and/or operating costs of the Union (the siting of the European Parliamnet at Strasbourg needs to go on the table, at least).  Given our understanding of finance, we might well have useful things to say on the Eurozone architecture too – even though we clearly can’t be part of it.

To do this our leaders (the Prime Minister and the Deputy Prime Minister in the lead) need to build two sets of alliances.  The first is within the British body politic, so that the referendum can be won.  This needs to cover Tory pragmatists (David Cameron, George Osborne and William Hague), the Labour leadership and, preferably, the SNP.  The Lib Dems have an important role in making this hold together since, by and large, they understand the Union the best.  Mr Clegg’s experience of deal-making in the European parliament counts for a lot.  The next set of alliances is within the Union itself, to create a Single Market bloc.  The obvious candidates are the Nordic countries, Ireland and the Netherlands, together with many of the newer members in central and eastern Europe.

This will be very difficult.  That’s the point, almost.  The reward is a stabler EU, constructed more to our taste, even if we must concede some powers to an inner core of Euro area countries.  Everybody wins.  And by taking on the wilder Eurosceptic fringe, including their newspaper backers, it will cheer all right-thinking people up.  It’s time we stopped being paralysed by fear and came out fighting.

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Memo to Miliband: break some eggs

As a political insider it’s very easy to be carried away by partisan emotions, but very dangerous.  Thus I have been watching (not literally) the Labour conference with a great deal of caution.  I want to scoff, but my better self tells me to be more careful.  And that applied especially the Labour leader Ed Miliband’s speech delivered yesterday.  After reading the commentary in the papers I decided that I had to read the text of it too.

Let’s start with the good bits.  It set out a clear narrative for the past present and future. His starting point was Mrs Thatcher and the 1980s.  Some good reforms but she started a culture of heedless self-advancement.  New Labour was a step forward because it invested heavily in public services and in tackling poverty – but it didn’t do enough (anything?) to change a reckless business culture, and this brought the whole system down in the financial crash of 2008-09.  After the crash the current government is doing nothing to address this underlying sickness, and its austerity policies are choking off growth and making things worse.  For the future, Mr Miliband wants to transform society by making government more moral, and finally taming the monster that Mrs Thatcher unleashed.

Mr Miliband’s core constituency, the “squeezed middle”, remained firmly at the centre of his narrative – although he wisely did not use that phrase.  These are people who are neither rich nor poor, and whose living standards are being steadily squeezed, as government largesse is focused on those who are poorer.  Mr Miliband identified this key group at the start of his leadership, and he is maintaining his aim.  He is clearly more successful in this than the Liberal Democrat leader Nick Clegg, who has identified the same group as decisive (using the phrase “Alarm Clock Britain” to describe them, to general derision), but has struggled to hit the right note.

It is easy to pick holes in the narrative, but that would only hint at its main weaknesses. Firstly that to most people it will sound abstract and irrelevant, and second that he failed to tackle the hard choices that would show he meant business.

Irrelevance?  Britain stands in the middle of a global financial crisis, lurching towards another episode on a par with the crisis of 2008.  The Euro zone is at the heart of this crisis, and thus the European Union, this country’s main diplomatic and economic partner, is facing the biggest challenge in its history.  And Mr Miliband’s answer to this global challenge?  To fiddle with VAT rates and implement the government’s cuts a bit slower.  The world situation got hardly a mention.  No doubt the idea is to set a time-bomb for the government, so that as the economy fails to approve he can say “told you so”.  But since Labour’s explanation of the 2008 crisis was the world economic situation, what answer do they have if this government says the same thing?  As George Osborne and David Cameron  scurry round the globe trying to stave off disaster, Labour stays at home and whinges about VAT.  This doesn’t look very convincing.

And he did not have much else to say that would help his squeezed middle voters in the pocket, rather than replicating their complaints about benefit cheats and fatcats.  In fact he did not have much to say on specific policies at all.  He wants to cut university tuition fees (which would in fact help the better off more than anybody) and that’s about it.

The problem is this: change hurts.  People know that instinctively, so that to convince them that you are serious you have to do painful things.  Tony Blair did so by taking on a number of Labour shibboleths: Clause 4 of the party constitution, not raising income taxes and (as few now remember) sticking to the then Tory government’s austerity plans to tackle the deficit.  David Cameron did similar things on socially liberal issues, while eschewing tax cuts.  What will Mr Miliband do to show that he is serious about his mission to transform Britain, and win back trust?

Here are some things he might do:

  • Accept more publicly the logic of the Government’s austerity policies in order to create the funds for tax cuts to the squeezed middle as the economy improves.  We did get statements that they could not reinstate all the government’s cuts, but the delivery of these was so muffled that I don’t think most Labour activists noticed them, still less become angry.
  • Call for reform of the European Union so as to address the unfolding financial crisis, throwing down the gauntlet to Tory Eurosceptics.
  • Pick a serious fight with the trade unions about public sector strikes and participation in Labour politics.
  • Call on the government to get serious about coasting schools and sub-standard health services by in the first case getting tougher on teachers and the second closing sub-critical hospitals and putting serious heat onto GPs.
  • Challenging ordinary voters by pointing out that they also contributed to the crisis by living off credit cards and going for ever bigger mortgages.

Each of these would require a lot of courage – but that’s the point; he must make a lot of people  in his party angry.  Instead we get some rather bland ideas about favouring “good” rather than “bad” businesses.  But these sound rather like things that the coalition is already putting forward on banking reform and reshaping the economy towards manufacturing and green businesses –  Mr Miliband even quoted Lib Dem Business Secretary Vince Cable in his support on the radio this morning.  Other ideas sound like more bureaucracy.

To make an omelette, they say, you have to break some eggs.  Until Mr Miliband starts breaking eggs nobody will take him seriously.

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The strange cheerfulness of the Liberal Democrats

I returned from the Liberal Democrat conference in Birmingham yesterday.  After the March conference, when things were already looking bad, I blogged under the title of “The Strange Cohesion of the Liberal Democrats”.  The cohesion is still there, but to that was added widespread cheerfulness.  This was not expected, but widely commented on .

This is strange for a number of reasons.  The party’s situation remains dire.  The Independent’s cartoonist depicts the party’s bird logo as a dodo.  Though I naturally believe the opinion polls showing the party at 17%, this still isn’t that much better than what was achieved at the calamitous local elections last May.  And plenty of polls show a much lower rating, down to 10%.  Some party leaders (notably Paddy Ashdown) made much of some improved results in local by elections; but these are nearly meaningless, a fortunate confluence of favourable local factors.

And there’s plenty of anger about too, especially over NHS and education reforms, which worry many activists a lot.  And not everybody buys the leadership line that there is no alternative to the government’s austerity policy.  As Steve Richards of the Independent points out, the second conference after a general election should be when it is safest to display dissent in public; so why was it so muted?

Party conferences are always bubbles where attendees can cheer each other up without too much intrusion from the outside world.  And there was undoubtedly an element of this.  One reason for both the cohesion and the at times positively aggressive cheerfulness was a response to adversity.  As a party that is just one step away from oblivion, people did not have the confidence to display of too much disagreement; we are much more vulnerable than the Labour or Conservative parties when in similar straits.  This is not a bad sign; it shows a degree of maturity and survival instinct – in contrast to the response of the SDP in particular to the 1987 election, which resulted the party’s poll ratings dropping into the margin of error of nothing.

Party outsiders will not be convinced that the party’s fortunes are on the mend.  But for insiders there are some reasons for cheer.  First, of course, the thrill of being in government remains strong.  For so long the only hope of getting pet policies into action was that other parties might steal them.  Direct access to the levers of power is the ultimate reward for any serious political party.  It still feels good; almost nobody says that going into coalition with the Tories was a bad idea.

Further, the threat from the other parties does seem to have receded somewhat.  The Left’s rampant anger at the cuts and Lib Dem “betrayal” seems to be burning out.  Compared to Sheffield the demos outside the conference were pathetic.  And Labour’s poll rating are stuck in a rut.  And as for the Conservatives, only last May it looked as if their “human shield” strategy was working to a tee.  Our presence in the government was supposed to help de-toxify the Tory brand, while we took the full brunt of the anger at government policies.  Since then the party has managed its PR better, so that the opposite seems to be the case: that the Lib Dems get credit for anything progressive that the government does.  For example quite a lot was made of the government’s commitment to increasing foreign aid; and yet David Cameron gave this policy much more prominence than we did before the election.  In this, ironically, the party has been greatly helped by the Tory right, and their friends in the press.  The more they complain about Lib Dem influence, the easier it is for the Lib Dems to take credit for the nice bits.

All this gives credence to Nick Clegg’s “centre ground” strategy, first unveiled in March (I think) to widespread scepticism.  That means the party defines itself by what others do, the complaint ran.  But neither of the other parties can win a majority without the centre, so denying it to them improves the chances of a hung parliament.  And there may just be enough votes there so that the party can hang onto enough seats to be a real influence in the subsequent bargaining.  And who knows, if the party stays the course they may even get a little grudging respect from the electorate that so despises it now.

And of course, there is the attention.  The party have never had this degree of scrutiny before, leading to the widespread complaint that nobody knew what the party stood for.  They still don’t, by and large, but as the party learns how to present its distinctive profile in government this is changing.  But will the public like what they see?  Or is liberalism just a middle class hobby?  Getting people to understand what liberalism is, and persuading them that it is good for them is the real challenge ahead.

 

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It’s time for the Lib Dems to grow up

I had wanted to include the phrase “growing pains” in the title of this post, but growing is not what is happening to the Lib Dems at the moment.  Not in the sense of membership or votes, a small summer bounce in both notwithstanding.  It is about becoming a more mature political party – and becoming more mature is always painful.

I am going up to the party’s conference in Birmingham tomorrow; I don’t know what I’ll find.  Evidence of pain is everywhere.  There was a moment in April 2010, after the first party leaders’ debate when we dared to hope for something spectacular.  And this wasn’t just a  media frenzy – it was palpable on the doorstep and in the streets.  It has been downhill ever since, apart from the brief thrill of seeing the party enter government – though this left the voters unmoved, as opposed to party insiders.

Last May’s local election results were a massive trauma.  Many of the party’s activists were in the process of winning the country over “one ward at a time”.  They thought that by being relentlessly local, and doing a good job for their local voters, they would be insulated from the national tumult – something that has been by and large true in the past.  So it was a really rude shock.  Many blame the party’s MPs as shameless opportunitists who are out of touch with the voters and activists.  And of course, it showed the party that oblivion is just around the corner.

And there’s everything else.  Endless criticism on the papers; being the butt of comedians’ jokes (and worse) on the radio and TV.  Taking responsibility for unpopular reforms in the NHS and education.  I have an email today from a very long standing member who is about to resign because of the NHS bill.

And yet.  These are all vicissitudes that Britain’s two most successful political parties, Labour and the Conservatives, (leaving aside the SNP for now) have long learned to take in their stride.  It is part of being a grown up political party.  It is part of mattering.  At members’ meetings one of Nick Clegg’s favourite stories is what happened when the party went back to talk to the many voters that slipped out of the party’s grasp in last week of the General Election campaign.  It amounted to, “These are tough times, and we need a grown up political party.”  Enduring this type of pain is a necessary step to breaking through to the next stage of the party’s advance.

The trauma could kill the party, of course.  But if you are part of it you need to be positive, and ensure that it doesn’t.  The opportunity is palpable.  Neither Labour nor the Conservatives are flourishing.  If the party can hang on to something like its current number of seats, especially in a smaller parliament, then another hung parliament, and coalition opportunity, is odds on.  Who needs electoral reform?

And the whole nation is in trauma.  The good times just aren’t coming back.  The apparent economic achievements of the last decade are proving hollow.  Property prices will not rise endlessly to make everybody rich.  We haven’t got the money for the public services we used to have – just as the demographic challenge is about to get much worse.  Labour still haven’t come to terms with their failure, and seem to be stuck somewhere between anger and denial.  The Tories are riven by divisions between a rampant but lunatic right, and the leadership’s more paternalistic vision.

If the Liberal Democrats can get their story straight, there is all to play for.  There are signs that the party is slowly addressing this.  The conference motions don’t really do this, with the Facing the Future motion on strategy (with its 17 priorities) a particular disappointment.  The Quality of Life and Community Politics motions offer some light, though.  But behind the scenes there is a furious discussion over the party’s narrative.  Some good ideas are emerging.

Labour’s vision of a benign and overpowering government, aligned with rampant capitalism, has let the country down badly.  The Tories are chasing after a fantasy of a little England run by an unfettered middle class.  The Lib Dems can offer a sustainable future based on real empowerment of the people, in a proper international context.  Go for it!

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Taming the banks: two views from the FT

Oh the shame of the FT’s paywall!  Yesterday  the paper presented a wonderful view of the debate on the UK banking reforms proposed by the Vickers Commission with two opinion pieces under the title Taming the banks, long overdue or utter folly?  For the reforms was regular columnist John Kay.  Mr Kay (though I’m sure he’s not really a mere Mr) is one of my favourite FT columnists.   His articles do come out on his website in due course, but not this one yet, I’m afraid.  It is a very lucid article, pointing out the massive size of UK banks balance sheets: at £6 trillion, four times the size of the country’s income.  Of these but a tiny fraction is lending to industry, and a rather larger fraction is domestic lending such as mortgages.  The bulk of it is to the finance industry pumping up the great game of leverage.  The idea of ringfencing, the critical part of the proposed reforms, is to stop the small fraction of balance sheets that matters to individuals and “real” businesses from being poisoned by financial engineering gone wrong; or to put it another way, to stop the British state from having to underwrite the latter to protect the former.  Mr Kay’s only criticism is that the reforms are being implemented too slowly.

The opposing article is from Sir Martin Jacomb.  Sir Martin is no more a banker than Mr Kay, that is to say he’s done non-executive directorships but not much more; he’s a lawyer and chiefly famous for saying that universities should be independent of government, and that Oxford University should cut its ties with the state.  The bankers are in fact rather quiet on the reforms, after some rather clumsy lobbying to get the implementation delayed, which appears to have been quite successful.  The weakness of their case seems reinforced by Sir Martin’s article, which nearly nonsense.  Is this really the best the FT could find?

Sir Martin reiterates a familiar litany:

  • The reforms advocate breaking up “universal banks”, but this model “can be perfectly safe”.
  • It will hurt the City’s international position. “There must be universal bankers in Frankfurt rubbing their hands.”
  • It will cause the loss of jobs and taxes.
  • the new banks will not able to offer helpful products to industry.
  • It does not address the immediate problems besetting European banking,  “which result not from mistakes by bankers so much as blunders by European Union governments in the management of the euro.”

This lot is readily disposed of:

  • Universal banks did not come out the recent crisis well.  It is true that some of the better managed ones did not need direct government rescue (Barclays and HSBC in the UK, BNP Paribas, JP Morgan), though still benefited from implicit and explicit guarantees.  But far too many did, especially in America (notably Citigroup and Bank of America), here (Natwest and HBOS) and Switzerland (both UBS and SBC).
  • This is yet another cry of “Wolf!” from the City.  I remember how us not joining the Euro was supposed to kill the City in favour of Frankfurt.  The City’s standing is based on network effects of people, skills and time zones.  Most of its activity is from foreign owned institutions already.  If the UK owned activity shrinks, it is because the public liabilities that go with it are too large.  It best that we adapt.
  • This sort of answers the jobs and taxes bit.  As Mr Kay points out, lending to job-creating non-financial businesses should not be affected, and might even benefit if they do not have to compete for attention with gearing up of financial products.  It is much healthier if our economy is less dependent on highly paid bankers’ jobs.
  • Sir Martin uses the example of a currency hedging, which might be useful for an exporter with a long term contract.  But surely his ordinary banker can introduce him to an investment banker at little extra cost?
  • This is true; it’s a separate issue.  But is quite astonishing for him to suggest that the Euro area problems are the fault of politicians rather than bankers.  It was the bankers that bankrolled the Italian, Portuguese and Greek governments at absurdly cheap prices.  It was its banking industry that laid the Irish government low.  It was bankers from across the zone that pumped up the Spanish property bubble.   This kind of “it wasn’t us” defence from bankers simply shows how little they have learned from the disaster.

Apart this whingeing, Sir Martin makes a more subtle point.  We should be promoting more competent management amongst banks, and excessive regulation does the opposite.  Well, we must ask what caused the rampant incompetence in the most of the world’s banks before the crisis.  Surely it was the thought that if things went bad governments would come to the rescue, and it would all then be somebody else’s problem?  This is exactly what the reform seeks to address.  By separating the investment banking side out, it means that failure from that side will be easier to tolerate, and should not require the UK tax payer to stump up.  The retail side would be bailed out in the event of a failure, true, but it will be more difficult for these banks to pump themselves up to create a massive hole.  

There is an irony behind all this.  The point about banking reform is to make banking more, not less risky, for bankers anyway.  We need to see more bank failures, not less.  The by-line to Sir Martin’s article is perhaps its most cogent bit:  “Beware the paradox that a system to limit risk invariably increases it”.  But risk to whom?

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My 9/11

11th September 2001 was a wonderful, bright and sunny day here in London, just as it was in New York.  You didn’t need a jacket outdoors.  I was on duty for a presentation to a prospective client that morning, at the client’s offices.  I was done by lunch time and walked through the lobby blissfully unaware of what was happening over the Atlantic, though it must have been on television screens in the lobby by then.  As I walked through the sun from Gresham Street to our office on Moorgate I was in a world of my own, relieved that the presentation was done.

It wasn’t until I reached the office with sandwiches in hand that I found out.  “Somebody has flown a plane into he World Trade Centre,” a colleague said.  I had in mind a light aircraft, or perhaps something a bit like the plane that flew into the Empire State Building in the war.  It was only as I tapped into my computer that the scale of it started to become clear.  The internet was overloaded, so the information only came through slowly.  At first there were the burning buildings.  And then the towers collapsed.  We held an emergency management meeting, since the trading and custody activities that we administered would certainly have been affected.  But there wasn’t much we could do.

Our management team had held a global conference in New York only that April.  And we’d had dinner at the restaurant on top of the World Trade Centre tower.  We’d used those lifts.

Nobody could do much work; we gathered in small groups.  Apart from trying to understand the sheer horror, the main concern was what the Americans might do in response.  Revenge attacks would only make things worse, we all thought – but were all too likely.

I went home a bit early, I think.  A lot of City workers had been sent home in the afternoon.  I joined my wife in front of the television – she had been home that day and had been watching the TV as the second plane struck, having turned it on more or less by accident just after the first one had.

I had a meeting scheduled for that evening. The local primary school where I was a governor had an OFSTED inspection going on – and the inspectors wanted to talk to governors that evening.  Would it be cancelled?  No notice to say it was, so I went.

And the meeting did go ahead.  The head of the inspection team, a self-important little man, carried on as if nothing had happened; he didn’t even mention it.  This was his day of power, and no terrorists were going to spoil it.  I managed to sit through it, but said nothing.  Back home to watch the TV.

And that’s what I remember.  How have we been spending the 10th anniversary?  We went to see Marlow’s Dr Faustus at the Globe.  We started in a shower, but the weather was mostly nice.  An interesting and enjoyable play, well produced and played to a packed house.  Going there and back we had to go to Waterloo, since the Bank branch of the Northern line was closed.  We worked our way through the crowds attracted to the Thames Festival – and had a delicious venison sandwich for lunch from one of the stalls.  On the way back we visited the Tate Modern to have tea in the Members’ Room and to see the Miro exhibition in its last couple of hours.  Mostly his work is beyond me; but some of the paintings were breathtaking – especially the huge triptychs.  The resonances with other Spanish artists, Picasso and Dali, were interesting, as was the relationship to political background in Spain (and Catalonia); I can only imagine the man’s total despair in the early 1940s.  As we hurried for the station in the rain we passed a carnival parade gathering for its moment of glory behind the National Theatre.

The South Bank was packed with people seemingly of all nations having a nice day out.  Apart from the rain the only blot was Transport for London’s decision to keep the York Road entrance to Waterloo tube closed – in spite of the crowds.  The folly of this was illustrated when they had to close one of the down escalators because of an accident.  Such are our everyday frustrations ten years on.

And later I will be joining some of my local Lib Dem friends in the Nightingale pub for our regular monthly drinks.  Life is well within its usual frame.  But we don’t forget.

 

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Tony Blair is both right and wrong, but mostly yesterday’s man

Well I was going to turn the radio off this morning when John Humphreys was interviewing Tony Blair to mark the 10th anniversary of 9/11.  But I couldn’t go that far, and I caught about half of it.  I’m glad I did because it has helped clarify my views on confronting terrorism.

Mr Blair’s main argument is a lot more subtle than it is often made out to be.  He dismisses his critics as believing that the Islamic extremists (and I think that term is a fair one) are not a lunatic fringe who can be contained using normal security methods.  They are in fact the extreme end of a much larger spectrum of people who agree with their virulent anti-western narrative.  Since they have such a large hinterland of people who will support them and from whom they can recruit, they will simply grow stronger if they are not vigorously confronted.   He completely rejects the idea that the West’s interventions in Iraq and Afghanistan have made things worse, since he says the terrorists would have gathered strength anyway.  What provoked 9/11? he asks.  The Al-Qaeda threat is of much longer standing than than these Western interventions.

And he is partly right.  There is a big hinterland for the terrorist groups, and an even bigger group of people who think that there are two sides to what is going on, rather than it being a simple battle between good and evil.  But from the same facts I draw a different conclusion.  This is not just a battle between just goodies and baddies; there is a huge neutral middle ground whose support is decisive.  These are mainly Muslims, and they live all over the world.  If these people come to the conclusion that the terrorists are a bad thing, who will make their aspirations more difficult to achieve, then Al-Qaeda and its like will be isolated and disappear.  If, on the other hand, they accept the clash of civilizations narrative, their support, even if mostly tacit, will keep the terrorist threat going forever.

There is a security campaign against the terrorists; but there is also a hearts and minds campaign for the Muslim public.  Unfortunately, if we are too uncompromising on the first campaign we will not win the second.  It is important to occupy the moral high ground.  The tragedy is that Tony Blair, and the American neocons, think they are occupying this higher ground.  In fact they have been systematically provoking the Muslim public.

And the important thing to understand about the hearts and minds campaign is that the ground shifts.  What gave Al-Qaeda real strength in its early days was the US intervention in the first Gulf War in the 1990s, which led to the stationing of US troops on Saudi soil; this seemed an insult.  It probably didn’t mean a great deal to the wider Muslim public, but it was enough for a determined group of Middle East activists to get started, mainly from Saudi Arabia and Yemen.  Israel, Iraq and Iran didn’t really come into things.  This was enough to lead to 9/11.

But the American response to 9/11 changed the game.  The outrage initially gave them the precious high ground, but they made cynical use of it.  Two problems stand out: the campaign in Iraq and taking sides with Israel.  These may not have been all that relevant to the Al-Qaeda threat in 2001, but they became so because the the strength of the American intervention.  The Muslim public became angry with America and its allies, and the extremists were able to pump up the clash of civilisations narrative.  They started to draw in many more recruits from right  across the world, including Britain.

But the hearts and minds battle has not been one-sided.  The terrorists’ very success has exposed the weakness of their case.  They now spend more energy killing other Muslims and creating civil disorder in Muslim countries than they do on attacking the west.  They have no real answers to the problems that trouble so many Muslims: dis-empowerment and poverty.  The west is retreating from Iraq and, ever so slowly, Afghanistan.  The British coming together after 7/7 has not played to the extremist narrative.  The western response to the Arab Spring has shown it to be a bit less cynical than people thought – comparing favourably with China and Russia, say.  In Libya Al-Qaeda and the west turned out to be on the same side.  Israel remains a running sore, of course.

Of course we need a robust security response to the terrorist threat.  But it can do more harm that good.  Assassinations and suspending the rule of law should not be part of it.  The terrorists may not be moved by this – but they will increasingly lose the support of their hinterland.

We have to move on.  Mr Bush’s and Mr Blair’s response to 9/11 was a huge mistake, and we can’t expect them to acknowledge this.  But they are yesterday’s men.  We’ve learnt a lot.  A new generation of leaders is showing more subtlety.  Slowly, we are learning how to manage the terrorist threat.

 

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Time for Plan B?

Predictably, the heat is mounting on the British government to soften its fiscal policy in light of weak economic growth.  Today the new IMF chief Christine Lagarde seems to be adding to the pressure, even if she wasn’t explicit.  The code for changing this policy is referred to by political types as “Plan B”.  I am now convinced that some sort of Plan B may now be a good idea – but it would not take the form that a lot of Plan B advocates, especially the Labour opposition propose.

First, why?  I have been progressively convinced by the FT’s economics editor Martin Wolf.  I have found him to be easily the most cogent commentator on the current economic situation, better than any number of economics Nobel Laureates or former members of the Bank of England monetary policy committee, who seem to think that their past glories can compensate for the shallowness of their analysis.  Paul Krugman, Ken Rogoff, Joseph Stiglitz, to name a few, have disappointed somebody that has respected their weightier works; David Blanchflower has turned downright silly in order to widen his audience.  Mr Wolf has been consistent, logical, and has gone further than most to try and understand all facets of the arguments.

The problem in the UK economy is not lack of consumer demand, since consumers are right to pay down debt as a priority right now.  The problem is lack of business investment, and a weak world economy, and hence potential export markets.  And excessively tight fiscal policy may send investment into a doom-loop, since so much depends on confidence.  Add to that the fact that current levels of public expenditure are unsustainable, and the massive size of the public deficit, and you will understand that most versions of Plan B are unconvincing.  Reducing the cuts simply creates problems for later, and builds up a false confidence in what this nation can afford.  Cutting VAT temporarily, as advocated by Labour,  addresses the wrong problem.

The answer must be to promote investment.  As Mr Wolf points out (here but behind the FT paywall), there is a golden opportunity for the government to do so because its borrowing costs are so low.  The trick is finding projects that deliver a convincing financial return; borrowing against such projects does not undermine the country’s finances.  Unfortunately this is easier said than done.  A lot of public projects make extravagant claims about their worth, but are in reality wasteful prestige initiatives – think of the Building Schools for the Future programme.  Or else they turn out to be so badly managed that promised returns are never delivered – think of NHS IT, or Edinburgh trams, or anything undertaken by the Ministry of Defence.

There is no doubt some scope for increasing funding to standard public projects.  But actually what needs to be done is to provide more support for medium sized and small businesses, especially growing ones.  The banks are not stepping up to the plate, demanding ludicrous returns for their efforts.  Surely there is scope for the government to beef up regional development funds and increase funding for institutions such as the Green Investment Bank.  This will not open the floodgates to usher in an era of rapid growth.  But surely it would help.

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The Euro: Thatcherism by other means

It’s a grim time for supporters of the Euro project like me.  Hardly a day goes by without hearing some highly patronizing person going on about how a country fixing its exchange rate is a terrible idea  because it can’t then devalue when it hits trouble, and how the austerity policies in the Euro zone are doomed to fail.  One irony is that many of these people are from the the political right; the sort of people who think that the Thatcher revolution of the 1980s was not just a good thing, but a turning point for the British economy.  In fact the Euro advocates are proposing very similar medicine for southern Europe.

The UK economy inherited by Mrs Thatcher in 1979 was a mess.  Both unemployment and inflation were persistent, and the country was referred to to as “the sick man of Europe”.  Mrs Thatcher’s solution was to focus on the long or medium term drivers of success, with utter contempt for short-term palliatives.  She progressively liberalised the economy, and in particular the labour market, then dominated by trade union power, and taxation, which had reached punitive levels on the rich (and not so rich, come to that).  In macroeconomic policy she believed in squeezing down inflation through tough monetary and fiscal policies.  Interest rates soared.  Amongst other things, the pound rapidly appreciated.  This was all part of the medicine.

The results were indeed dramatic.  Unemployment got much worse, with devastation sweeping through great swathes of industry – all of which makes our current troubles look like small beer, even though, according to GDP statistics, we are supposed to be in a worse mess now.  But in due course the economy prospered and reached undreamed of heights – though some parts of the country never recovered.

Back to the Euro zone.  The underlying problem with all of the currently struggling economies, except Ireland maybe, is not entirely dissimilar to that faced by Britain in 1979.  A host of product market, labour market and tax inefficiencies have conspired to make their economies relatively uncompetitive.  The political will to tackle these problems has been lacking.  Before the Euro they could simply let their currencies slide to offset this lack of competitiveness.  But all this did was to ensure that the living standards of citizens stayed below their potential.  And it was unsustainable in the long term; eventually you get to stagflation and even hyperinflation – a fate which Portugal in particular was reaching before the Euro project offered rescue.  Once in the Euro devaluation is not an option, and so politicians have to focus on medium and long term reforms.  This is what they are now doing, some with more enthusiasm (say Portugal) than others (say Italy).

Mrs Thatcher, of course, would never approve of a country joining the Euro – she treasured national sovereignty too much – but she would have approved of many of its consequences.  Mrs Thatcher did not believe in devaluation.

But this is hardly an advertisement for the Euro for many.  A lot of people still think that the Thatcher years were a period of gratuitous violence with adverse consequences that we are still suffering.  It was she that was responsible for the trashing of so much British manufacturing, with the appreciating pound very much part of this.  And the work she started was capably continued by Messrs Brown and Blair, since a high pound, together with aggressive exporting practices from China and India, had a similar effect in the 2000s – albeit compensated by unsustainable jobs in finance and building.

And there is no avoiding that the southern European economies need to go through a process of harsh economic reform, or else suffer a slow slide into poverty.  Euro advocates had always foreseen this; what they had not foreseen was that reduced government borrowing costs once in the Euro would allow these countries to put off the evil day, only to make it infinitely worse when it arrived.

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Is the Ebacc such a bad idea?

Michael Gove, the Education Secretary for England (his remit not extending elsewhere in the UK, so far as I know), is one of the more controversial figures in the government.  I haven’t met anybody that works in or with the education sector that approves of him.  But amongst politicos and journalists, especially right-wing ones, he is considered one of the government’s best performers.  He is widely reviled by Liberal Democrats.  But not everything he says is nonsense.  And indeed the controversy he stirs up reveals some uncomfortable things about our educational establishment.  Today I am looking at one of his many controversial ideas: the English Baccalaureate, commonly referred to as the “Ebacc”.

What is it?  In principle the Ebacc is a certificate awarded to pupils who get C or better grades in five or more GCSE subjects, which must include maths, English, a foreign language (including Latin or ancient Greek), science, and history or geography (for more details see the link above).  Actually I’m not sure that it is a certificate yet; it was introduced last year as a performance target to show how well schools were doing in teaching these “core” academic subjects.

Why is it so controversial?  In the first place because it was dropped on schools out of nowhere last year, before they had a chance to plan for it.  Critics say that it should have been “tested” and phased in.  There may be some pupils who suffer because employers will be looking for their Ebacc when the school had put them in for some other subjects before they knew about it.  There is a lot of upset from schools who had looked good in earlier league tables that don’t look so good under this one.  This is mainly whinging by professionals who spend too much energy gaming the system to look good in league tables rather than considering what is best for their pupils.  To be fair, of course, many of the people I am dismissing as whingers actually have a more fundamental disagreement with the idea.  I am coming to that.

Also there are some more practical issues about how schools will respond.  One blogger (Anastasia de Waal of Civitas, quite sympathetic to the idea of a more academic curriculum) worries that schools won’t bother with pupils that they don’t think are going to reach C grades in one or more of these subjects.  This goes to the heart of another question: that of the use of league tables and performance measures.  A big topic for another day.

But the real controversy is about the subjects that aren’t included.  There are some subjects, such as religious studies and philosophy, that are (or should be) quite academic.  Why not include these if they test the same skills?  But the real issue is a whole swathe of “applied” or “vocational” subjects which have found their way into the GCSE.  These include applied sciences, applied languages (don’t ask), and things such as ICT (information and communications technology) and media studies.  These subjects were designed for pupils characterised as less academic, and were popular in schools because it was easier for students to get better grades.  By focusing on the more academic topics, the critics say, you are letting down all these less academic pupils from typically poorer backgrounds.

But the problem is that these “less academic” subjects are a major failure.  They are based on a misconception of what secondary school education at that age should be about.  They are, or so I understand, largely based on knowledge transfer, and not deeper understanding.  Pupils learn answers by rote and splurge them out as required.  But even supposing retention is good for this type of study, this knowledge is soon out of date.  What higher education recruiters and employers want, even for practical jobs, is understanding.  The “academic” subjects are much better at teaching this.  A college running a technology course would much rather its pupils were taught mathematics to a decent standard than any amount of ICT teaching (though schools have long been required to focus on maths and English).

This criticism makes a lot of sense to me, though I have only been involved in secondary education as a pupil, and that a long time ago.  For accountancy it has long been said that good basics (especially maths) is all that you really need from school – the rest can be picked up pretty quickly later.  When recruiting staff, I must admit that I didn’t take all that much interest in school qualifications if there was anything else (such as work experience) to go on.  And I find the idea of doing an applied subject without doing the theory alongside it to be equally flawed.

What am I saying?  At GCSE level a broad choice of subjects does not make for good education.  You need to focus on a range of basics and do them well.  Some regard the choice of subjects in the Ebacc as perverse, when other topics are equally as good.  I’m really not sure about that.  I don’t see that either religious studies or philosophy are good candidates to push out history or geography, or still less a foreign language.  Philosophy surely best after GCSE; I just don’t believe that religious studies is as stretching or socially inclusive as history or geography.  In my day I did a standard set of O levels, all in the Ebacc range (except English Literature); I never found that limiting.

What of the pupils who don’t make the Ebacc standard?  A very real problem – but the “applied” and “vocational” GCSEs were never the answer.  Better teaching and higher expectations are.  The more I see of the educational establishment, the more I am convinced that too many are content with the mediocre.

There is a final irony.  Mr Gove and his supporters often criticise modern education for lacking a focus on facts.  Actually the more academic subjects they advocate are mainly about skills, not facts.  They teach you how to think.  The less academic subjects fail because they are too focused on facts.  Of course you might argue that history and geography are, or should be, fact-based – but don’t get me started on that!

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