Beltway Briefing

The top five stories from US politics today.

 

1. Sarah Palin was in Iowa today -- not for electioneering, but for the premiere of Undefeated, a new documentary about her. Outside the Pella Opera House, she refused to elaborate on her daughter's statement on Fox and Friends yesterday that her mother had "definitely" made up her mind about whether she will run.

"What exactly did Bristol say?" she said. "I texted Bristol, I said 'What did you say this morning, honey?' What I told Bristol, too, I said, 'What is talked about on the fishing boat stays on the fishing boat.'"

She also said that she is "not ready to announce anything yet" about a possible candidacy.

2. Speculation continues, too, about the intentions of Texas Governor Rick Perry. He will be in California this week, holding private meetings with Republican leaders, potential fundraisers and legislators.

Tomorrow morning, he will meet with business leaders in Beverly Hills, a city which is a rich source of campaign funding. Later, he will meet with GOP leaders in Newport Beach, before meeting Republican legislators in Sacramento.

While a spokesman says that the trip has nothing to do with the 2012 campaign, this programme of meetings appears to say otherwise.

3. Michele Bachmann has styled herself "American Girl" of the presidential race, as the grassroots Tea Party candidate, and used the 1977 hit song at the end of two speeches this week in Waterloo, Iowa, where she formally kicked off her campaign. But if reports are to be believed, she won't be able to use it as her theme for long. According to the Los Angeles Times, Tom Petty has told Bachmann that he doesn't want her to use his song at campaign events.

She is not alone -- Petty was also reported to refuse George W Bush's request to use his song "I Won't Back Down". If you are still in any doubt about the singer's political orientation, Hillary Clinton used "American Girl" at events when she was running for the Democratic nomination in 2008. Petty did not object.

4. The Democratic super PAC Priorities USA launched a television advert today in Colorado, Florida, Iowa, North Carolina and Virginia (states thought to be competitive in the next election), rebutting claims made in an ad by Crossroads GPS, an independent conservative group founded by Karl Rove.

The $5m Crossroads ad -- released on Monday -- blamed President Barack Obama for the unemployment rate, national debt, and high gas prices.

The Priorities USA ad, which by contrast cost in the region of $750,000, calls this "politics at its worst".

5. Herman Cain, the Republican presidential candidate, will publish a book detailing his life and career as the former CEO of Godfather's Pizza.

The memoir will be called Who is Herman Cain? and is set for release in October.

A statement released by the publisher said:

The recent Republican debate in New Hampshire introduced Herman Cain as a Presidential candidate, yet little is known about his impressive background. A proud 'outsider' in the political arena, Cain created his name in corporate America rather than on Capitol Hill, through four decades spent revitalizing business in the private sector.

Unfortunately, he is still polling in low single-digit numbers, though.

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

Ralph Orlowski / Getty
Show Hide image

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

0800 7318496