David Cameron outside 10 Downing Street on 27 February 2014. Photograph: Getty Images.
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Cameron’s petty and parochial view of politics has accelerated the decline of British power

There isn’t much point expecting a more sophisticated account of Britain’s role in the world from the Prime Minister.

Alone, Britain can do nothing to reverse a Russian land-grab in Ukraine. In concert with other European countries and the US, London has some influence over Moscow but even then not much. A western military adventure on Vladimir Putin’s threshold is unthinkable. That leaves diplomatic opprobrium and economic sanctions as the only levers, over which David Cameron’s hand hovers uncertainly.

Putin is betting that a fiscally fragile European Union will not fancy taking on Ukraine as a dysfunctional client state, nor jeopardising its eastern gas supplies to make a point about sovereignty in the Black Sea. He is right. If Russia demands possession of Crimea and strategic dominance of eastern Ukraine, Cameron and others will acquiesce.

There is nothing new in the exposure of Britain as a mediocrity among powers. Our credentials as a nation that matters – a big economy, a professional army, nuclear weapons, a seat on the UN Security Council – are carried over from the 20th century. It is not clear how that elevated status will be sustained. Nor is it necessarily plausible for Britain to imagine itself as a global force distinct from the EU when other players – the US, China, India – are the size of continents.

Cameron touches on this when he talks about a “global race” but he has in mind a commercial rivalry played out within globally recognised boundaries of free-market capitalism. A lesson from Crimea is that some states don’t play by those rules.

There isn’t much point expecting a more sophisticated account of Britain’s role in the world from the Prime Minister. It isn’t in his nature to dwell on perplexing things. His friends present his short attention span as a healthy aversion to ideology; a very British pragmatism. The ungenerous interpretation that circulates among disappointed Tory modernisers and angry traditionalists alike is of a high-spec public school dilettante, clever and self-assured enough to busk an answer to most questions but disinclined to interrogate matters in depth.

That temperament is reflected in foreign policy. Cameron has handled relations with the EU – a vital strategic alliance – as a function of Conservative Party management. In opposition, it was a hazardous topic to be avoided. In government, when evasion became impossible, he switched to obstructing co-operation and calling that reform.

His attitude to overseas conflicts has also evolved ad hoc. In opposition, he rejected Tony Blair’s model of liberalising vigilantism, asserting in 2008, “We cannot drop democracy from 10,000 feet.” In Downing Street, the focus switched to economic expediency. He styled himself as salesman-in-chief of UK wares.

The limitations of diplomacy as mercantilist roadshow were exposed by the Arab spring. As brittle dictatorships crumbled in northern Africa, Cameron discovered a Blair-like capacity for human rights evangelism. In Libya, that became military support for a rebel insurgency. The relative success of that enterprise from Downing Street’s point of view – Colonel Gaddafi toppled without harm to UK troops – gave Cameron the confidence to offer support for prospective US strikes in Syria last summer. But he misjudged the readiness of his MPs to go along with that gamble. Their reluctance, combined with Labour’s visceral post-Blair suspicion of military impetuosity, snuffed out Cameron’s interventionist spirit. Normal insular service was resumed.

The Prime Minister’s humiliation would have been greater had a Tory spin operation, led by George Osborne, not changed the subject. Instead of Downing Street miscalculation, the Westminster conversation switched to a supposed crisis of national self-confidence, triggered by Ed Miliband infecting parliament with lefty pacifism.

There was a brief attempt to revive that partisan spirit in the context of Russia’s Ukrainian incursion. Tory MPs, including ministers close to Cameron and Osborne, suggested that Putin had somehow been emboldened by Labour’s new tendency to appeasement. That sniping was silenced when word came down from the Foreign Office that mining the current crisis for old mud to fling at the opposition was not serving the cause of government dignity or prime ministerial authority.

The impulse to play domestic politics in an international emergency was revealing. The Conservative side of the coalition has artfully reduced political debate in this parliament to the most parochial terms possible. A financial crisis born of global economic imbalances and systemic market failure has been truncated into a parable of wanton Labour spending. The challenge of running public services on tight budgets is expressed as a test of will to withdraw undeserved cash from idle layabouts.

Cringing fear of Ukip has prohibited any serious effort to defend a single European market, including free movement of workers, as a driver of future prosperity. What vestige there is of liberal migration policy in government is secretly supported by the Treasury and publicly blamed on the Liberal Democrats. Anything amiss in the country is ascribed to failure from Labour’s time in office.

This approach to politics as glorified parlour game yields petty victories that don’t add up to successful government. It gives no clarity about Cameron’s motive for being in Downing Street, aside from the recreational pleasure of winning and holding power. Since the Prime Minister struggles to express guiding principles in a domestic agenda that consumes most of his time, it seems unlikely he will articulate a coherent sense of strategic purpose in foreign affairs, to which he pays only occasional attention. He may talk about global challenges but his record is of ducking difficult issues and keeping politics parochial. 

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

This article first appeared in the 05 March 2014 issue of the New Statesman, Putin's power game

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation