Beltway Briefing

The top five stories from US politics today.

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1. Will Rick Perry put himself forward for the Republican candidacy? The Texas governor is said to be very close to announcing his bid. As a mainstream conservative who is also well liked by the evangelical and Tea Party factions of the party, he has the potential for widespread appeal. At the end of his speech at the Republican spring conference this weekend, he received a standing ovation and the audience chanted "Run, Rick, Run!"

Perry, a former air force pilot, is a good speaker and was even better received than other popular figures at the conference, including Newt Gingrich and Michele Bachman, who has already announced her candidacy. Known as an all-American tough guy, he jogs with a pistol in his belt and shot a coyote during a run last year.

The Wall Street Journal reports that his aides are currently looking at the problems he would face as a late entrant, such as raising sufficient funds. Romney and Bachmann: live in fear.

2. Ron Paul is celebrating his victory in a straw poll taken at the same weekend conference. The Texas congressman -- who at 75 says he is not too old to be president -- gained 612 votes, despite not matching this success in nationwide polls. This rating put him far ahead of former Utah governor Jon Huntsman, who got 382 votes in the straw poll and is expected to join the race later this week.

Here is Paul on NBC's Today, saying that his victory shows that he appeals to people who are fed up with US involvement in "endless, undeclared, unwinnable wars dumped on the young people", and concerned about the economy.

3. Bachman has cemented her reputation as a formidable fundraiser. Her latest filing with the Federal Election Commission, the Republican presidential hopeful had $2.8 million cash on hand. By comparison, the veteran politician Paul has $1.6 million. She took in $13.5 million in the 2010 election cycle, making her the most prolific fundraiser in the House.

Interestingly, the vast majority of this is from individuals making relatively small donations, which is in keeping with her position as the grassroots, Tea Party candidate. Of the $1.7 million she reported raising last quarter, all but $1,500 came from individuals. The average donation was just $619.34. Her individual contributions are now nearly 100 per cent of her total funds, compared with just over half in 2006.

The Washington Post attributes this to "money blurts", which create excitement and attract a high volume of small donors:

[Bachman has] made a specialty of raising money in the wake of bold and well-placed remarks. Shortly after accusing President Obama of having "anti-American views" during one cable-news appearance, for example, Bachmann took in nearly $1 million.

Will other candidates be inspired to make similarly lucrative, controversial statements?

4. A study by a Facebook advertising firm appears to suggest that the best bet for Republican candidates trying to attract online clicks is to focus their ads on President Barack Obama, rather than on issues such as the economy.

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It also showed that Sarah Palin is still a bigger magnet for online page views than any of the other announced or potential Republican presidential hopefuls -- although this could be because she has greater recognition. The Huffington Post has more details on the data.

5. Senator John McCain angered the Latino community by claiming yesterday that illegal immigrants were responsible for starting some of the huge fires that have devastated Arizon in recent weeks. He said there was "substantial evidence" that migrants set fires to keep warm, signal to others, or distract border guards, although he didn't say what this evidence was.

This is good news for the Obama administration, which is engaged in an aggressive push for Hispanic support ahead of 2012. After successes with increasing black voter turn-out in 2008, Obama's team is trying to raise historically low rates of Hispanic registration and turnout in at least six swing states.

However, according to Politico, Obama has angered one national Hispanic organisation by missing their annual conference for the third consecutive year, despite promising before his election in 2008 that he would return as president.

Juan C. Zapata, a Florida Republican and chairman of the group's educational fund, told Politico: "He sent a very clear message to the Hispanic community that, 'I want your support on the campaign, but I am not willing to do anything to earn it'."

 

Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

Ralph Orlowski / Getty
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Labour's investment bank plan could help fix our damaging financial system

The UK should learn from the success of a similar project in Germany.

Labour’s election manifesto has proved controversial, with the Tories and the right-wing media claiming it would take us back to the 1970s. But it contains at least one excellent idea which is certainly not out-dated and which would in fact help to address a key problem in our post-financial-crisis world.

Even setting aside the damage wrought by the 2008 crash, it’s clear the UK’s financial sector is not serving the real economy. The New Economics Foundation recently revealed that fewer than 10% of the total stock of UK bank loans are to non-financial and non-real estate businesses. The majority of their lending goes to other financial sector firms, insurance and pension funds, consumer finance, and commercial real estate.

Labour’s proposed UK Investment Bank would be a welcome antidote to a financial system that is too often damaging or simply useless. There are many successful examples of public development banks in the world’s fastest-growing economies, such as China and Korea. However, the UK can look closer to home for a suitable model: the KfW in Germany (not exactly a country known for ‘disastrous socialist policies’). With assets of over 500bn, the KfW is the world’s largest state-owned development bank when its size is measured as a percentage of GDP, and it is an institution from which the UK can draw much-needed lessons if it wishes to create a financial system more beneficial to the real economy.

Where does the money come from? Although KfW’s initial paid-up capital stems purely from public sources, it currently funds itself mainly through borrowing cheaply on the international capital markets with a federal government guarantee,  AA+ rating, and safe haven status for its public securities. With its own high ratings, the UK could easily follow this model, allowing its bank to borrow very cheaply. These activities would not add to the long-run public debt either: by definition an investment bank would invest in projects that would stimulate growth.

Aside from the obviously countercyclical role KfW played during the financial crisis, ramping up total business volume by over 40 per cent between 2007 and 2011 while UK banks became risk averse and caused a credit crunch, it also plays an important part in financing key sectors of the real economy that would otherwise have trouble accessing funds. This includes investment in research and innovation, and special programs for SMEs. Thanks to KfW, as well as an extensive network of regional and savings banks, fewer German SMEs report access to finance as a major problem than in comparator Euro area countries.

The Conservatives have talked a great deal about the need to rebalance the UK economy towards manufacturing. However, a real industrial policy needs more than just empty rhetoric: it needs finance. The KfW has historically played an important role in promoting German manufacturing, both at home and abroad, and to this day continues to provide finance to encourage the export of high-value-added German products

KfW works by on-lending most of its funds through the private banking system. This means that far from being the equivalent of a nationalisation, a public development bank can coexist without competing with the rest of the financial system. Like the UK, Germany has its share of large investment banks, some of which have caused massive instabilities. It is important to note that the establishment of a public bank would not have a negative effect on existing private banks, because in the short term, the UK will remain heavily dependent on financial services.

The main problem with Labour’s proposal is therefore not that too much of the financial sector will be publicly owned, but too little. Its proposed lending volume of £250bn over 10 years is small compared to the KfW’s total financing commitments of  750 billion over the past 10 years. Although the proposal is better than nothing, in order to be effective a public development bank will need to have sufficient scale.

Finally, although Brexit might make it marginally easier to establish the UK Investment Bank, because the country would no longer be constrained by EU State Aid Rules or the Maastricht criteria, it is worth remembering that KfW’s sizeable range of activities is perfectly legal under current EU rules.

So Europe cannot be blamed for holding back UK financial sector reform to date - the problem is simply a lack of political will in the current government. And with even key architects of 1980s financial liberalisation, such as the IMF and the economist Jeffrey Sachs, rethinking the role of the financial sector, isn’t it time Britain did the same?

Dr Natalya Naqvi is a research fellow at University College and the Blavatnik School of Government, University of Oxford, where she focuses on the role of the state and the financial sector in economic development

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