The GOP’s new weapon

George W Bush only pretended to be a good ol’ Texas cowboy. Rick Perry, governor of Texas and most r

Texas Governor Rick Perry's arrival one recent Monday at the Iowa State Fair indicated that the race to challenge Barack Obama for the presidency - an increasingly tempting prospect - had finally begun. Until Perry entered the race, it had been defined and led by the former Massachusetts governor Mitt Romney, who had conducted his campaign largely by hiding out between fundraising events, and had been able to convince neither Republicans nor Democrats that he's burning to lead a counter-revolution. His serious rivals had tended to fade, like Governor Tim Pawlenty or Jon Huntsman; and his strongest challenge came from Michele Bachmann, representative for Minnesota, a symbolic conservative firebrand who has stumbled on such details of policy and political fundamentals as showing up to events.

Perry, the longest-serving governor in state history, is a serious contender. He has a true conservative record that dates back to his days advocating pesticide use as agriculture commissioner of Texas, deep wells of money at hand, and retail political skills that put reporters following him in mind of Bill Clinton. And he is a dream to cover. At the state fair, he kissed babies and ate a pork chop on a stick, the local delicacy, moving from rigid cowboy pose to pose, an act that seemed to be dictated as much by recent back surgery as by machismo, but worked.

Concealed weapon

He answered question after question from swarming reporters. I asked him about his suggestion in an interview last year that he would replace social security with a system of state pensions - a stand that in ordinary times could cost him the White House - and he gamely repeated that he'd consider it.

Perry almost always plays to type, a type defined by the sympathetic Twitter parody @rickperryfacts: "Rick Perry can kill two stones with one bird . . . Rick Perry sleeps with his pillow under his gun . . . The Roman empire didn't fall, Rick Perry tripped it . . . Rick Perry's brisket is so good, he has been banned from all BBQ competitions . . . Atheists believe in Rick Perry."

He is a leading advocate for the right to carry concealed weapons, and as his own stories often feature him shooting something - a favourite one tells of him shooting a coyote while out for a job - I asked him if he was armed that day at the fair. Putting an arm around my shoulder, he responded: "That's why they call it concealed."

That night in Cedar Rapids, a reporter asked him about the Federal Reserve, our central bank. "If this guy prints more money between now and the election, I don't know what y'all would do to him in Iowa, but we would treat him pretty ugly down in Texas," Perry said. "I mean, printing more money to play politics at this particular time in American history is almost treacherous, or treasonous, in my opinion."

He may have scandalised Wall Street, but the answer played well in Cedar Rapids. By the end of the weekend, Obama's supporters - unable to fear the Republican field despite the president's woes - had woken up. Perry is straightforwardly terrifying, a gift to Obama.

Perry is a familiar figure to liberals. He was George W Bush's lieutenant governor, but you sometimes get the impression that Bush learned his shtick from Perry, not vice versa. Indeed, he is more or less what Europeans and American liberals imagined when they foamed at the mouth about Bush. While the 43rd president cultivated a Texas affect to balance out his roots in dynasty, Perry is the real deal.

Raised in a tiny farming town without a single stoplight, Perry got marks at agricultural college that weren't good enough to qualify for veterinary studies. He left with a degree in animal husbandry, and a specialty in football cheerleading that won him Texas A&M's coveted post of "Yell Leader".

His 2010 policy manifesto, Fed Up, speaks to the id of a branch of the Republican Party that's more interested in rolling back the federal government than in experimenting with federal policy. There's much in it to please conservatives - but also a great deal to worry those who would like to beat Obama next November.

Unvarnished

On matters of policy, Perry is probably to the right of any Republican nominee since Barry Goldwater's disastrous 1964 campaign. In Fed Up, he wrote that the passage of social security in 1935 required "violently tossing aside any respect for our founding principles" and suggested that federal banking, environmental and labour regulations are all unconstitutional. His staff have been forced to pull back from his jesting threats that Texas could secede from the Union. There was a reason Bush rebranded his version of small-government Texan politics "compassionate conservatism", but Perry hasn't put any sort of veneer on his views.

These stands will not trouble most Republican primary voters, but their implications may. They are targets for an Obama advertising campaign because their implications - abolishing social security, first of all - are so extreme. Merged with Perry's swagger, they could drive away key swing voters - women in the suburbs of big cities such as Philadelphia. The White House has signalled that Obama would rather run against Perry than Romney; some analysts speculate that it might even help him with early attacks on the former Massachusetts governor.

The former National Review editor William Buckley often promised to support the most conservative candidate who was electable. It's a rule Republicans have taken to heart, and Perry's chances will depend on how confident Republicans are that dissatisfaction with Obama will trump independents' concerns about Perry's style and substance. On 23 August the president reached his lowest point ever in Gallup's daily tracking polls, with approval ratings of 38 per cent. If numbers like that persist, Republican voters may just go with the cowboy.

Ben Smith writes for politico.com

This article first appeared in the 29 August 2011 issue of the New Statesman, Gold

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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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