Barack Obama's three year anniversary: a reader

It has been three years since the US President took office. Has he lived up to his promise?

I was on holiday in the US when Barack Obama was sworn in to office three years ago, and the sense of excitement was palpable. My contemporaries, people in their early twenties, told me that for the first time in their adult lives, they could feel proud of their country again. Three years on, and the tides have changed. It was perhaps inevitable that Obama would never quite live up to the hype (that pre-emptive Nobel Peace prize was tempting fate too far), but is the dream over? The right continue to demonise him as a foreigner and a socialist, while the left are frustrated at his perceived inaction and refusal to take a stand.

Over at the Guardian, Jonathan Freedland offers a thorough analysis of the charges leveled against Obama, and the defences offered by his supporters. He notes the impossibility of the situation facing Obama: "an intransigent Republican party in Congress that does not hide its desire to deny Obama anything that looks like an achievement, even if such paralysis damages the national interest." On the other hand, however, he made a tactical error by failing to tackle this challenge head on, remaining "cool, calm and hyper-rational to a fault". Ultimately, though, Freedland is optimistic, saying that "liberal disappointment with Obama is real", we should not ignore his record:

It is not a bad record and there is every chance that it will represent merely the first half of a long game. If, as looks likely, Obama is re-elected in November, the FDR precedent might be invoked once again: it was in his second term that Roosevelt notched up some of his greatest achievements. This president, too, may have learned from his mistakes and got the true measure of his enemies. After three long, hard years, there are still grounds for hope.

Time magazine has secured an interview with Obama. This Q&A with the president is prefaced by a long piece by Fareed Zakaria (not yet online) on Obama's foreign policy. In this piece, Zakaria is broadly positive: "The reality is that, despite domestic challenges and limited resources, President Obama has pursued an effective foreign policy". In the Q&A (which focuses solely on foreign policy), Obama defends his record. Asked about his admiration for George H.W. Bush, he says:

Now that I've been in office for three years, I think that I'm always cautious about comparing what we've done to what others have done, just because each period is unique. Each set of challenges is unique.

Writing in Newsweek, Andrew Sullivan shares Freedland's optimism, writing that "the attacks from both the right and the left on the man and his policies aren't out of bounds. They're simply -- empirically -- wrong". Sullivan first takes on right-wring critics, crunching the numbers on unemployment to show that Obama's economic policies are far more successful than he has been given credit for, and pointing out that healthcare reform was moderate. Next he takes on the left, who "projected onto Obama absurd notions of what a president can actually do in a polarized country". While conceding that the president cannot regain the promise of 2008, Sullivan maintains that now we have gone the other way, "grotesquely" underplaying his talents:

What liberals have never understood about Obama is that he practices a show-don't-tell, long-game form of domestic politics. What matters to him is what he can get done, not what he can immediately take credit for.

At the Atlantic, Conor Friedersdorf takes on Sullivan's piece, lamenting Obama "apologists" who downplay certain aspects of the president's record:

Like President Bush, he is breaking the law, transgressing against civil liberties, and championing a radical view of executive power -- and he is invoking the War on Terror to get away with it.

...

Obama has transgressed against what is arguably Congress' most essential check on executive power -- its status as the decider of when America goes to war -- and he has codified indefinite detention into law, something that hasn't been done since Japanese Americans were detained during World War II. But at least he doesn't torture people! How low we've set the bar.

Meanwhile, at the Washington Post blog, Chris Cillizza and Aaron Blake note that Obama's campaign has chosen to launch ads in six swing states ahead of next week's State of the Union address, and ask whether it is too soon, given that the Republicans haven't even chosen their candidate yet. They also argue that a negative campaign would be more helpful than the positive ads currently being broadcast:

Obama has to win the economic argument among loosely affiliated and unaffiliated voters in order to win a second term. And his best path to doing that is to discredit Romney as an effective economic messenger.

Given that reality, one Democratic media consultant suggested that it could well be a waste of money for Obama to run even one positive ad.

The jury is still out, and we can expect more furious debate as the presidential race gets closer and the Republicans select a candidate. Obama clearly has some fighting to do to replay even a fraction of his electoral success in 2008.

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

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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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