World – Page 13 – thinking liberal

Understanding the Euro Crisis

My favourite contemporary economist is UCL’s Professor Wendy Carlin. She was my tutor at UCL, and led my second year macroeconomics course, and a third year course on European institutions. Her patient, dispassionate analysis is worth so much more than all that shoot-from-the-hip banging on by celebrity economists, Nobel Laureates and all. It was her analysis, well before the current crisis broke, that demonstrated to me that the last government’s economic “miracle” was unsustainable (the combination of an appreciating real exchange rate and a trade deficit being the giveaways). She also helped me understand the Eurozone, and pointed out the trouble ahead, again well before it happened, arising from diverging real exchange rates within the currency bloc – in other words Germany was becoming more competitive while Italy, Spain and others were becoming less so.

So I was delighted to read her summary of the Eurozone crisis – 10 questions about the Eurozone crisis and whether it can be solved. The is a wonderfully clear summary of the whole situation, written in early September. Her central point is that the zone’s banking system is at the heart of the crisis, and tackling the banks will the heart of any solution. European politicians have been trying to avoid this, no doubt because it shows that Northern European countries have played an important role in creating the crisis. However, not least thanks to the new IMF chief Christine Lagarde, this is changing.

Of course Professor Carlin cannot point to an easy escape. She points to two alternatives paths, other than the breakup of the zone:

Scenario #1 – a more decisive approach based on current policy (bailouts)
Policy-makers need

the existing bailout schemes to be successful and to be seen to be working in the next year

to keep Italy out of the bailout regime

to develop a replacement for the high moral hazard regime for banks and for governments but to do this in a way that does not undermine the bailout regime in the meantime.

Scenario #2 – large-scale restructuring of bank and government debts (defaults)
Policy-makers need

to move decisively now to end the high moral hazard regime by accepting that default on bank and government bonds on a much larger scale than envisaged in Scenario #1 is necessary

to engage in restructuring sovereign debt and bank debt by, for example, forcing bond-holders to swap existing short-term bonds for long-term

European politicians are attempting the first path, but the problem is contained in Professor Carlin’s third bullet: devising a financial scheme that avoids moral hazard by banks and sovereign states – this reckless behaviour in the belief that it will be underwritten by everybody else. The favoured answer of many is a “Eurobond” – i.e. government borrowing underwritten collectively, combined with a toothier version of the failed Stability & Growth pact. But this decisive step towards a more federal Europe runs well beyond any democratic mandate. The German Chancellor, Angela Merkel, is rightly suspicious.

Which leaves the second scenario, which is favoured by American commentators, based on their experiences of Latin American debt crises. This is surely much more convincing, and I hope that the IMF will use its influence to push down this path. Bank regulation clearly needs to change, but beyond that it doesn’t need a more federal Europe. We can use bond spreads to act as a break on government profligacy – which is how the Eurozone should have been run from the start.

A final point worth making from Professor Carlin’s analysis is that dropping out of the Eurozone wouldn’t really help Greece or any other country that much. They would still have to run a government surplus, and so still have to go through a very painful reform programme sucking demand out of their economies. Of course the hope is that a rapid devaluation would kick start exports – but it does not stop the need for painful supply-side reforms if these countries are to recover anything like their former standards of living.

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.

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.

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.

Accounting for Libya

So now we are in a sort of endgame in the Libyan war. It is not over, but Gaddafi’s government has been decisively beaten. This outcome arises despite a constant stream of scepticism amongst experts and commentators, right from the start, and from a broad political spectrum. I was not one of these sceptics, and I must admit to being annoyed by the patronising tone of much of it, assuming that politicians and supporters were muddled naifs who had failed to learn from history. While these sceptics rapidly move on to point out the considerable difficulties that will arise in rebuilding the country, I feel that some accounting is called for.

As I said at the time, Libya’s situation was unique. It’s geography is such as to make air power particularly effective. Gaddafi’s rampant egotism had made him diplomatically isolated, tolerated by his allies and not liked. In spite of claims by many that there was no clear strategy for the intervention, the strategy was clear all along. Use air power to protect the existing rebel strongholds and then strangle the Gaddafi regime. After this it would basically collapse from within. This was mainly about momentum and morale. Apart from a core of die-hard loyalists, who had much to lose from regime change, the regime’s power depended on two sources of support: loyal tribes and mercenary soldiers. These would only be effective as long they thought the regime was going to win.

And so it has transpired. The fall of Tripoli was remarkable. Yes the core loyalists fought hard, and they are still there – but there were not enough of them, and they seemed to lack organisation. The mercenaries had melted away into thin air. The sympathetic tribes just looked on. The turning point seems to have been the cutting off of the capital from succour coming in via the Tunisian and Algerian borders.

None of this is hindsight – seem my post last March. What annoys me about the many critics is their inability to look beyond the generalities to the specific facts of the case. To them, it was this way in Iraq, so it will be this way in Libya. I am afraid that this kind of unthinking generalisation is a general disease right across modern society, and especially amongst people counted as experts. From medicine to economic policy. People don’t bother to analyse the particulars of the case, simply spouting forth the general rules with confidence.

It is too much to hope this will change. But we fight on.

Sometimes things just don’t make sense

It is one of the most enduring human characteristics to try and see patterns in the world around us. We don’t like the idea of random events. People even pore over lottery numbers.

After the awful events in Norway last week, it is only natural that people try to make sense of them. The most common is that it is part of the rise in right-wing hate politics – for example Timothy Egan in the New York Times or Matthew Feldman in the Independent. A more original alternative, from Joan Smith, also in the Independent, is that it is part of frustrated male pride, with parallels in the British 7/7 bombers.

But I don’t think any of this helps. Of course people who think we should do more about the extreme right will use this event to bolster their case. And the extremists themselves may also do so, on the grounds that this act shows just how desperate things are getting. Frustrated macho pride was clearly part of the toxic mix, but this afflicts most of the male population. The more I find out about Anders Behring Brehvik, the more I think his lawyer is closer to the mark by describing him as “mad”.

I am no psychologist, but I don’t think Brehvik fits the normal description of insanity. But he does seem to have something that the professionals call a “personality disorder”. He seems to have real difficulty in socialising. He acted alone, almost certainly, when most terrorist acts are collaborations, like the 7/7 bombings, with people encouraging each other on. He read widely, and took inspiration from a lot of different sources, but he doesn’t seem to have tried harden his ideas through proper discussion and argument with anybody else. They are a very flaky agglomeration of fantasies. The idea of a cultural war between the West and Islam has many followers, but allying with mumbo-jumbo of the Knights Templar? Describing himself as Christian without any reference to what that actually means?

It is nonsense. If he hadn’t picked up on these ideas, something else might have done. Anarchism, perhaps. The closest parallel is the US Unabomber, another unconnected loner. We can try too hard to find patterns. Sometimes the only way to understand something is to say that it is senseless. The random act of a madman.

Europe’s financial crisis gets dangerous

While the British news media and politicos alike obsess with the unfolding of the News of the World hacking scandal, Europe’s financial crisis enters a dangerous stage. In fact this crisis seems to unfolding just as quickly, and with much more important potential consequences. Was I being too sanguine last Friday, when I blogged that it was a learning curve rather than a fundamental problem? Well, probably.

I had hardly posted it than a flood of dire articles about the crisis came out. One of the best is by eminent US economist Larry Summers in this morning’s FT(£); alongside it an equally gloomy article from FT regular Wolfgang Munchau (£). Mr Summers points to the critical issue of confidence that could be destroyed in a default, drawing a parallel with Lehman in 2008. He then offers quite a plausible way out. But the problem, as Mr Munchau points out, is:

I often hear that Ms Merkel in particular has moved a long way from her original position 18 months ago, when she ruled out any money for Greece. This is true. But the crisis now moves at a rate that exceeds her political speed limit.

There’s clearly a problem. One issue is the expectation that European leaders will muddle through, as they always have. This, unfortunately, is a self-destroying prophesy. Because Europe’s leaders expect everything to come right in the end, they don’t have the incentive to make it actually happen. Actually Europe’s greatest achievements have required some strong leadership, with Helmut Kohl, Germany’s Chancellor in the 1990s standing out. Mr Kohl achieved German unification on his own terms, pushed through monetary union and the massive eastward expansion of NATO and the EU right into the former Soviet Empire. Mrs Merkel does not fill his shoes.

Still, there are plenty of bright ideas for ways out, without the Eurozone collapsing, Mr Summers’s among them. They will all require Mrs Merkel to shift her current stance. Things could get worse before they get better. At any rate it looks more soluble than the US budgetary stand-off.

The Euro crisis: structural failure or learning curve?

Coverage of the crisis in the Eurozone is astonishingly poor. Commentators scarcely try to analyse the situation properly; instead they revert to one of two unsatisfactory critiques. First, the Eurosceptic one, is that the Eurozone was always an unworkable idea and the best thing to do is abandon the whole thing. The alternative, the Europhile critique, is that a currency union without political integration was a major mistake, and the best thing to do is move further towards the political integration of the union.

These positions are both unhelpful. The Eurosceptics fail to see the benefits of the currency union, the awful logistics involved in unpicking it, or the unsatisfactory nature of floating currencies for most countries. The Europhiles want to drag European peoples down a road they do not want to go. There is a third way: that Eurozone governments change their countries’ economic arrangements so that they can live within the currency zone, more or less as it is currently configured. This crisis is a learning experience.

The more far-sighted of the Eurozone’s designers did not want full political integration. It was never to be a currency zone like the USA, with a federal government able to make massive fiscal transfers across the union to help balance out asymmetric crises. Instead the single currency, alongside the single market, was meant to act as a discipline on national governments. This would address the widespread failure of floating currencies, which allowed governments to buy time through currency depreciation rather than addressing economic inefficiency. This was a process leading inexorably to hyperinflation and economic collapse – which was very clearly beckoning for Portugal in particular before the Euro project was taken on board.

Discipline was required in two particular areas: government finances and labour markets. In the former case discipline is to be provided by the threat of default; in the zone it was impossible to evade default by debauching the currency. The consquences of a sovereign default are very severe, and European leaders sought to prevent it through the muddled Growth & Stability Pact, which sought to restrict deficits and levels of government debt. For labour markets the discipline was that without flexible labour markets, economies would become uncompetitive, creating unemployment.

But things went badly wrong almost immediately. Bond markets did not seem to believe the default story, as spreads between the more creditworthy governments (like Germany) and the less so (Italy and Greece) were impossibly narrow. Governments in the shakier countries (especially Italy, Portugal and Greece) found it much too easy to borrow cheaply and used this as an excuse for not proceeding with reform.

Labour markets were largely untouched by reform, as were other economic inflexibilities. This caused major problems in Spain, Portugal, Italy and Greece whose economies became increasingly uncompetitive. Only one country (apart from Ireland perhaps) really grasped the implications of living inside the Euro, and that was Germany. After unification the German economy lost competitiveness and unemployment became a real problem. But through its system of corporate deal-making between employers and unions, pay was restrained and other reforms instituted. Competitiveness was duly restored, as was employment. Unfortunately that made things worse for the laggards.

While the Eurozone had proved a failure in these two areas it proved a bit too successful in another: capital flows. There was a lot of reckless lending, with quasi-public banks in Germany in prominence. Capital flowed freely to countries, like Spain and Ireland, that didn’t really deserve it, allowing problems to be hidden in a property bubble. And then Pop! The Eurozone has lurched from one crisis to the next.

But the basic idea remains intact. Markets now fully appreciate the risks of default and are pricing debt accordingly. This is applying pressure on governments like Italy’s that the Growth & Stability Pact simply could not. And the pressure to make market reforms is likewise proving unbearable. It’s been a horrible experience for many, but this is not a structural failure: it’s a learning curve.

So what next? The Greek government must default, and default properly (i.e. the principal must be cut rather than repayment simply deferred). Maybe it will be forced out of the Euro. If so, it will be a terrible example. Some eurosceptics make it all sound rather easy (“decouple, default, devalue”), but it involves the utter collapse of the Greek economy with private savings being wiped out. The hope would be that it would be easier to rebuild from the ashes than interminable limping along inside the zone. Portugal and Ireland (whose crime was not to manage its banking system properly) may also go through some form of de-facto default. But they will stay in the zone. Portugal must go through a painful period of reforms, but at least for them this path is clearly better than being outside the Euro.

Meanwhile the Euro governments need to keep “kicking the can down the road”. This is not as short-sighted as it sounds, since with each kick the various parties invovled understand the situation better and what needs to be done. The default word is now openly talked of. German bluster over not bailing out the profligate is gradually having to come to terms with the role German banks played in the disaster. There is learning for the Germans too. Bold decisive action can be disastrous – it didn’t help the Irish. This way things are properly thought through.

Reforms? Fiscal reforms are unnecessary. But the banking system does need serious attention. The regulatory system is badly coordinated. There are too many cosy quasi-public banks who have been allowed to make silly investments. Banks remain largely national affairs, with only a limited number of transnationals. There is strong case for a centralised banking regulator. And cross-border banking mergers need to be encouraged.

But the Eurozone is not dead; and neither are we on the verge of a more centralised European government.

Poverty Over campaign: why Christian Aid is not serious about eradicating poverty

I am a regular donor to Christian Aid, with a history of support that goes right back to when I was a boy. It has outlasted my attachment to the Church itself because the charity does not go in for proselytising, and they are dealing with some pretty gritty and important issues. So I get their supporters’ magazine. The latest publicises their Poverty Over campaign (which in the publicity is written as POVERTY). The aim is to “deal with the root causes of poverty”; the publicity highlights eight issues: climate change, conflict, corruption, disasters, food and agriculture, health, inequality, and tax. All of these issues are closely related to poverty. But, like “Make Poverty History” before it, the title suggests that its aim is to end poverty, rather than to merely alleviate it. And here it has almost nothing to say. Perhaps because the answer is too uncomfortable for most of the charity’s supporters, and perhaps even its staff, to accept.

There has been rather a lot of progress in eradicating poverty in the last couple of centuries. According to the map that accompanies the article, in 1821 pretty much the whole world was in poverty (Britain, Ireland and the Netherlands were the exceptions according to this, though the inclusion of Ireland is surely a bit shaky). Now according to the map alongside it only a minority of countries are in poverty, across the central part of Africa, and a few Asian outliers like Afghanistan and Burma. That picture seems a bit too bright, but we need to acknowledge the progress made by countries such as South Korea and China in the last 40 or so years. It is worth asking how such rapid progress has been made.

We usually think of poverty in terms of low consumption – insufficient food, poor shelter, a few clothes and practically nothing else. It is more helpful to look at the other side of the coin: low production, or low productivity. Beating poverty is about boosting the productivity of countries that are poor. It’s not about dumping surplus production from the rich onto poor societies, the only other way it can theoretically be broken

And yet raising production involves wrenching change. And one change above all: moving people from the countryside to towns. In poor societies agriculture is ludicrously inefficient, and this drags the whole economy down. In towns it is much easier to mobilise people into more productive activities in manufacturing and services. What is more, it is much more efficient to deliver basic services such as education, health services, power and water to people living in towns. Pretty much every breakout from poverty, from our own in Britain in the 18th and 19th centuries, to China now, has invovled the emptying of the countryside and the growth of massive cities. Only when society is much more wealthy, and infrastructure much better, do we see some reversal. Now where’s that in Christian Aid’s eight issues?

The problem is that we in our comfortable developed societies don’t like the idea of imposing such drastic change on the poor. The change is painful. Families are torn apart; initially poverty at both ends (in the country and town) is extreme. Our attitudes to the country are tinged with a folk memory of a lost rural idyll. There’s another uncomfortable truth. Such changes sit uneasily with democracy. Some of the most successful changes have been carried out by benevolent dictatorships (consider China, the early days of South Korea, Singapore). The record of democracies may be better than that of kleptocratic dictatorships, but it is flawed. India has advanced phenomenally, but, compared to China, it has left huge swathes of the population behind in dire poverty without much hope of escape. Poverty Over implies turning a blind eye to progressive dictatorships.

So what should we be doing if we truly want to end poverty? Well the first point is that we can’t impose progress from outside. Ending poverty is painful, and not an automatic choice; things may have to get worse before they get better; this has to be led by the locals. We have to back off a bit. The second point is that most aid should focus on urban poverty. Rural poverty may be cuddlier and more instinctively appealing (remember the Christmas campaigns about buying people goats?) but it carries the risk of perpetuating poverty rather than ending it. Rural aid should concentrate on making it easier for people to migrate: so improving literacy and education is an obvious one. But even then you get more bang for your buck in the towns. Thirdly we should promote the role of competition and businesses in the developing world, if we can. Too often local elites leach off local businesses, or create excessive regulation as a source of soft jobs and bribes. That prevents more productive employment opportunities from being created. Fourthly, promote constructive multinationals. Multinationals inject a dose modern productivity and efficiency into countries, and helps raise levels of trade. They are perhaps the best way of channelling our excess wealth into the developing world. Of course there are badly behaved multinationals, complicit in corruption and taking more than they give – but when they work well they are a better, more sustainable channel of help than any other.

Urbanisation; helping businesses; supporting the right sort of multinationals. Apart from a tangential reference in dealing with corruption, none of this gets a look in in Poverty Over. Not even education does. Instead of ideas that would really help eradicate poverty, we get a ragbag of politically correct issues that suit the tastes of western do-gooders. Christian Aid is not beginning to tackle the root causes of poverty. Perhaps it shouldn’t try. Good knows that just alleviating its symptoms needs doing. That’s why I will continue to support them.

Libya: the UN motion is not just a cynical gesture

I’m getting a bit fed up with commentators who launch into diatribes based on generalities, without bothering to examine the facts of the case in point. Libya is the latest example. I have read two articles critical of the UN motion authorising military action; Max Hastings in the FT, and Sean Collins in Spiked. The situation in Libya is interesting because it is unique; these articles are almost worthless because they never get beyond generalities. In fact exceptional circumstances make the UN-approved action a viable way forward; and no doubt that is why it was proposed.

Mr Collins’s article is the weaker – but it is a pretty typical offering for a Spiked writer. (See my post on Spiked). Its title is Libya: how the West just made things worse. He says:

Far from rescuing the Libyan uprising, the resolution is a setback for the cause of democracy and self-determination.

He does not do a good job of explaining why though. We get the usual complaints that it will undermine the rebels’ legitimacy; we also get a rather old-fashioned (and unsupported) reference to the sacred principle of national sovereignty. He does not even attempt to explain how this is worse for the rebels than being overrun by Gaddafi’s forces, or at least how this would be better for self-determination and democracy. This comes over as just another rant from a writer who would condemn any action taken by a Western leader, whatever it was.

Mr Hastings’s article is much more disappointing, because he is a military historian who should be able to deploy some insight and expertise, if he could be bothered. His article is entitled US and its allies are too late to help Libya. His contention is that only intervention by ground forces will save the Libyan rebels:

…the situation today is where it always was: once Muammer Gaddafi showed himself determined to fight, only direct ground intervention by the US and its allies would have enabled the ill-armed rebels to prevail.

This would ordinarily be a correct assessment; but Libya is different. Libya consists of a series of settlements separated by expanses of desert. Crossing this desert is the key to success, and that gives air power a much greater effectiveness than normal. Ground forces must be motorised – but motor vehicles are vulnerable with so little cover. Or you use airpower – which, of course can be neutralised by opposing airpower. Added to which are the issues of logistics; advancing forces find it increasingly difficult to keep in fuel and ammunition the further they advance – and rely on motor or air transport for these too. This is not Kosovo or Bosnia. Gaddafi does not have huge forces at his disposal, so it is quite realistic for this intervention to halt them – although not to roll them back.

So it looks quite feasible for the West to sustain the rebel territory from Benghazi eastwards, especially given the moral boost that intervention gives them. This still leaves Gaddafi in control of most of the country. How is he to be defeated? He will be defeated once his forces start to lose hope. This is possible because he depends on two groups in particular: foreign mercenaries and tribal allies. Both of these need to be on the winning side; a third group, Gaddafi loyalists who face the prospect of being lynched if Gaddafi loses, are more reliable but not enough. Gaddafi’s problem is that the economy has collapsed: he needs those migrant workers and the oil trade. More rigorous enforcement of sanctions is part of the UN resolution.

Which leads me to another exceptional circumstance: Gaddafi is diplomatically isolated. The Arab League has come out against him, and he has no allies (apart from Syria perhaps and, who knows?, Iran). This is just reward for his antics and excessive ego; he was never a reliable ally. This puts him in the same situation as Saddam Hussein after his attack on Kuwait. This isolation gives the West a much greater degree of legitimacy, as well as making it much more difficult for him to rebuild a sustainable state from the territory he does hold.

So the scenario for victory is this. Gaddafi’s advances are halted and the resolve of the rebels sustained by the no-fly zone, and air strikes from Western powers and Arab states (with the US not necessarily playing a huge role). Gaddafi’s support then gradually melts away as his tribal allies are tempted to change sides in order to bring the conflict to an end, and mercenaries become unwilling to expose themselves to air attack and the possibility of the regime collapsing. This is not the only possible outcome – but it is viable. Unlike trying to shift the Serbs from Kosovo with air power alone.

What are the morals for dictators wishing to avoid overthrow? First keep the armed forces under your control (unlike Tunisia and Egypt). Second make sure you stay friends with enough of your neighbours (unlike Gaddafi and Saddam). All the worse for the incipient rebellions in Bahrain and Yemen. Also it helps if your country isn’t mostly desert. Robert Mugabe looks pretty safe.