Afghanistan is not a hopeless quagmire

The choice now is to risk abandoning a decade of military and civilian investment, or to capitalise on it.

NATO’s leaders have set out a roadmap for long term political and economic support for Afghanistan, but the headline-grabbing component is that the NATO-led combat mission will cease in 2014.

Despite repeated assurances that the alliance will provide support and training to the Afghan National Security Forces well beyond 2014, the strategy is frequently portrayed as a "rush to the exit". This perception threatens to undermine our armed forces’ remarkable achievements in Afghanistan. After more than a decade of their sacrifices, the Afghan National Security Forces are increasingly able to take the lead in maintaining security. This is essential in order to build a functioning Afghan state.  But it is only one part of the task.  There are still daunting challenges to strengthen civilian services and the economy.

A decade of development assistance has transformed many lives. 5.8 million Afghan children, including 2.2 million girls, are now in school – up from 1 million boys and no girls under the Taleban.  More than half the population now have access to health facilities within an hour’s journey, compared to less than 10 per cent in 2002.

The situation in Afghanistan is far from rosy, but it is not the hopeless quagmire sometimes portrayed in the media which, understandably, gives more space to dreadful events like "green-on-blue" attacks, rather than the slow but steady progress with Afghanistan’s ability to stand on its own feet.

I have recently returned from my fifth visit to Afghanistan where I had the opportunity to take stock of the situation as seen by NATO military and civilian personnel and Afghan parliamentary and provincial leaders. One measure of progress is the truly remarkable growth in the Afghan National Security Forces (ANSF).  A few years ago – and not before time – efforts began to recruit and train the over 350,000 soldiers and police men and women judged necessary to maintain security in Afghanistan.  With well over 300,000 now in place, Afghan forces are now taking the lead in a growing number of districts and provinces.  By the end of next year, they will be in the lead throughout Afghanistan although ISAF – and its successor – will continue to provide support and training well beyond 2014.  Some capabilities such as air support, medical evacuation and other key “enablers” take time to build from scratch.  Highly-skilled pilots and engineers cannot be produced quickly in a nation whose education system has been woefully neglected for decades.

This leads me to my key point: NATO-led forces have enabled Afghanistan to increasingly take responsibility for its own security.  We must now do more to assist Afghanistan to bring about a similar step change in governance and the economy.

President Karzai is due to step down, and a new president to be elected, in April 2014. The election will not run like clockwork but it must be free and fair enough to reassure voters that the victor really is the people’s choice.  Afghanistan’s large, well trained and well equipped security forces are accountable to the Head of State.  If the new President were to lack legitimacy their loyalty and accountability could be compromised.

The challenges are formidable. The relationship between central government and the provinces is sometimes dysfunctional, corruption is rife, skilled labour is in critically short supply, and the economy has been devastated by decades of war.  But the investments needed to address these problems are much smaller than those that have been made in security.  The choice now is to risk abandoning a decade of military and civilian investment, or to capitalise on it.

During my recent visit, I saw how leaders in Herat have begun to take advantage of the relatively stable security environment there to create new economic opportunities.  They greatly appreciate the transformation that the international community has made possible, but they are also aware that they still have an enormous mountain to climb, and the climb could be made faster and easier with more outside help.

So what can we do?

First, launch specific assistance programmes to mitigate the economic effects of reducing force numbers and closing military bases.  The force drawdown will hurt local communities which have benefited economically from providing goods and services to many of our military facilities.  We must avoid delivering a harsh economic blow to an already impoverished people.

Second, help Afghanistan to register voters and create a trusted and independent electoral commission to supervise the elections.

Third, emphasise and re-emphasise that 2014 marks a transition to a new form of engagement and not a withdrawal.  The Afghan people remember being abandoned by the international community before and naturally fear the prospect of a repeat performance.  There is already evidence that uncertainty about “post-2014” is leading to the flight of capital and educated Afghans whom the country can ill afford to lose.

NATO and its partners should announce as soon as possible the details of the forces that will deliver support and assistance beyond 2014.  At the same time, the national and international organizations delivering civil and economic assistance should demonstrate a visible expansion of their activities.

Fourth, as the budget for "military operations" reduces, governments should allocate a proportion of their peace dividend to development assistance in Afghanistan.  The ratio certainly doesn’t need to be one-to-one.

According to one estimate, each American serviceman costs about a million dollars per year.  To put that in perspective, Afghanistan receives about 220 million Euros per year in aid from the European Union’s central budget and about five times that figure from the EU nations themselves.  That is a lot of money, but less than $2 billion, so less than the cost of 2,000 soldiers when we are bringing tens of thousands home.  We shouldn’t just throw money at Afghanistan, but we must make sure that development programmes are sufficiently resourced.

We should do this because we have succeeded in raising hopes in Afghanistan, and we have a responsibility to help those hopes to be fulfilled.  And if that is not reason enough, we should remember that it is in our own interest to ensure that Afghanistan does not fail. We have witnessed the terrible consequences of the world turning its back on Afghanistan. Through literally heroic efforts and sacrifices, Afghanistan is almost ready to take the lead in dealing with its own security problems.  We should now rise to the civil and economic challenges to make sure that our military sacrifices have not been in vain.

An elderly Afghan man walks past a US Army infantryman in the Panjwai district in Afghanistan. Photograph: Getty Images.

Hugh Bayley is Labour MP for York Central

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?