How to read the Iowa caucus results

All eyes are on Iowa, where voters are still undecided. Here is what to look out for in the results.

The Iowa caucus, which sounds the starting pistol in the Republican nomination race, gets underway tonight. Yet as voting fast approaches, there is still no clear frontrunner. Polls show that some two out of five voters in Iowa are still undecided.

There is no clear consensus among the pundits either, who variously predict that either Mitt Romney -- currently topping most national polls -- Ron Paul, or Rick Santorum could win in the state. These three candidates are almost evenly tied.

Richard Cohen at the Washington Post (who predicts that Romney will be victorious) notes that none of the other candidates have emerged from Iowa with their campaign in-tact:

The Iowa caucus has turned out to be a demolition derby for Republicans. With the exception of Romney and Santorum, they all have been damaged. Perry showed he couldn't debate (or talk), Bachmann had trouble with the truth, Gingrich acts like R2-D2 with a short circuit and Paul has been soiled by the ugly newsletters his foundation published in the past. Santorum emerges undented, (al dente?) but that could be because until too late he was not considered worth denting. Aside from him, though, only Romney came out of Iowa as he came in -- boring, but inevitable. He wins because everyone else loses.

Romney is cultivating this sense of inevitability around his campaign, seeking to give the impression that the party is coalescing around him. A big win in Iowa would give this tactic a significant boost, given that it has thus far looked like a tight race. On the other hand, if he falls into third place, he may have to do some explaining, although this will not necessarily spell disaster for the rest of his campaign.

What happens in Iowa does not necessarily reflect the eventual national outcome -- it is an oft-quoted fact that Mick Huckabee won in Iowa in 2008, although the nomination eventually went to John McCain. Indeed, since 1972, only three non-incumbent candidates have won the Iowa caucuses and went on to win the presidency -- Carter, George W. Bush, and President Obama. It is easy to make arguments for why this largely agricultural state does not reflect the US as a whole; yet it does represent the first test of the voting public, and a reasonable indication of the viability of a candidate's campaign.

For this reason, it can be almost more important who does badly than who does well. All of the second-tier candidates have insisted they will continue with their campaigns regardless of what happens in Iowa, but it is not unheard of for low polling candidates to drop out of the race.

Paul, who has stood for presidency twice before, will be particularly affected by this. In the past, he has been held back by the perception that he simply does not have sufficiently wide appeal to take the fight to the Democrats. A more organised campaign this time has worked to broaden his support base outside libertarians and students, and a win in Iowa could provide a counter-argument to those who maintain he is not a viable candidate.

Quite apart from what Iowa means for individual candidates, the level of voter turnout in this swing state -- important in the general election -- should give some indication about the strength of partisan feeling. As Michael Shear notes at the New York Times Caucus blog:

Fourteen months after a tidal wave of Republican energy helped sweep many Democrats out of Congress, the Iowa results will provide a hint about whether that intensity of purpose remains.

If 140,000 or 150,000 voters show up to the caucuses, that would be a good sign for Republicans (who have said for months that they have succeeded in adding to the rolls of registered Republicans). If fewer people show up than last time, it may suggest that the excitement of 2010 has faded a bit.

In a race so far characterised by uncertainty and swift rises to the top of the polls, matched in speed only by falls from grace, Iowa will give the first reliable test of public opinion. All eyes on the results.

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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