It's time for the US to rethink its AfPak strategy

The Afghanistan-Pakistan approach: a five point plan for Obama.

Afghanistan is a mess. Pakistan remains a perpetual headache.  The Obama Administration’s AfPak strategy is not working.  It is time for a fresh approach.  

The starting point must be a hard-headed assessment of what kind of Afghanistan can be left behind when NATO forces leave in 2014.  The aim should be to prevent a descent into an all out civil war.  The foundations for a stable regime should be established where all key players feel they have a stake in the future of the country.  

US strategy should be re-focused upon five strands.

First, however much one detests the Taliban and what it stands for, it is clear that its confidence is growing.  The start of its Spring Offensive on April 15 - which saw the targeting of foreign embassies and government institutions - underlined the severity of the situation.  The long-term risk of not directly involving those elements of the Taliban willing to cease hostilities in discussions about power-sharing post-2014 is much greater than the short-term fallout a US President might suffer from doing so.  This is also an issue where the strategic interests of both the US and Pakistan coincide, and where the latter could prove useful in seeking a compromise. 

The Taliban comprehends the reality of its own position.  After 35 years of fighting, it is itself exhausted and appreciates that marching on Kabul post-NATO withdrawal is not realistic given the increasing strength of the Afghan army.  It also realises that all foreign aid would be immediately cut off leaving it facing a disgruntled electorate and millions of mouths to feed.

But the longer the US shuns a political solution in favour of a futile military pummelling of the enemy, the weaker its negotiating position will become.  

Second, a regional track to diplomacy on Afghanistan must be established, involving all countries with strategic interests in the country.  Pakistan has for decades sought pliable government in Kabul to offer “strategic depth” against India for fear of “encirclement”.  But the recent visit to India by Asif Ali Zardari, the first by a Pakistani president since 2005, to promote bilateral trade – currently a paltry $3bn - is an encouraging sign of a potential rapprochement between the two neighbours.  

The Russians, Iranians and Arab states also have a stake.  A multilateral diplomatic initiative needs to begin imminently and be led by a credible third party with no historical Kalashnikov to grind.

Third, the extent of the use of drone attacks should be considered.  There is no doubt that they have brought success in dispensing with a number of unsavoury characters in North Waziristan, the base of the Haqqani Network of insurgents.  However, when innocent civilians are killed, this simply acts as a recruiting sergeant for family members to take up arms against the US to avenge the death of their relations.  Honour and revenge in blood are hallmarks of the Pashtun tribal code.  Such attacks should be used sparingly and judiciously.

Fourth, as a Pew research study conducted last year revealed, only 1 per cent of Pakistanis had a positive image of the US - despite $600m in aid being provided after the floods in 2010.  Of the $20bn the US has given since 2001, over 70 per cent has been taken by the country’s military.  The US must instead focus its aid efforts in both Afghanistan and Pakistan on the development of infrastructure and the provision of microfinance to small businesses starved of credit.  The biggest problem being faced by ordinary Pakistanis is the shortage of gas, and living for up to 18-hours a day without power.  More than 60 per cent of the population is under-25 and only 50 per cent are literate.  Central to solving the security conundrum is helping Pakistan back to a path of economic growth and job creation.

Fifth, with an eye on the Pakistan Parliamentary elections to be held early next year, the US must recognise that the political balance of power within the country may well shift.  The frustrated youth and urban educated elites of Pakistan have been captivated by the anti-corruption message of former cricketing legend turned politician, Imran Khan.  His rallies in Lahore and Karachi have attracted hundreds of thousands of ordinary Pakistanis.  A growing number are yearning for positive change.  They want an end to Berelvi (Sufi) shrines being bombed by radical Deobandi fanatics, economic prosperity, and their nation to be raised from the status of an international pariah state.  The US cannot afford to be caught out as it was, for a time, by the seismic events that took place across the Middle East last year. 

Laying the foundations for a stable Afghanistan by 2014 with Pakistan’s assistance is still achievable.  But it will require personal risk on the part of the President, whatever his political persuasion.  This is no time to be pusillanimous.  The situation demands a leader with the dexterity to strike a deal combined with a strategic vision for the region.  There might then still be one throw of the dice left in the Great Game.  

Ali Miraj was a member of the Conservative Party Commission on International and National Security 2005-2007

Barack Obama with Afghanistan's President Hamid Karzai, September 2011. Photo: Getty Images
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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation