Barack Obama with Chuck Hagel. Photo: Getty
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The departure of a third defence secretary finally kills off Obama’s hopes of a “team of rivals”

Chuck Hagel's resignation - the latest soap opera to hit the Obama adminstration - is a sign of severe dysfunction. The team of rivals has disintegrated, with many of them becoming a thorn in the president’s side as he limps on for a final two years.

November was a tough month for Barack Obama. It began with a huge defeat for the Democrats in the midterm elections, in which the Republicans won control of the Senate. It ended with more criticism being heaped upon his management of US foreign policy, after the secretary of defence, Chuck Hagel, announced his resignation. The usual cycle of leaks and counter-leaks seemed to confirm that it was not a mutual parting of the ways: Hagel had been pushed and the relationship between the White House and the Pentagon had hit a new low on a range of issues, including Syria, Iraq, Afghanistan and Russia.

Much like leading the Home Office in the UK, being the US secretary of defence is one of the toughest jobs to hold on to in Washington, DC. Charles A Stevenson, the author of the 2006 book SecDef: the Nearly Impossible Job of Secretary of Defence, recently noted that 23 individuals have held the position since it was created in 1947. If one includes Hagel’s departure, nine of them have been fired or forced to resign. By contrast, since 1789, only two secretaries of state have succumbed to the same fate.

Hagel is Obama’s third secretary of defence to go in six years, following Robert Gates and Leon Panetta. All of them have purportedly “retired” but that hides the real story. Gates, who survived from the Bush years, broke rank when he published his memoirs shortly after he left office. In Duty, he complained that the Obama White House was more centralised and controlling on national security than any since the days of Nixon. A few close advisers – some of them with minimal experience – held too much sway and they were more concerned with polling figures and partisan politics than long-term strategy. Gates’s replacement, the former CIA director Panetta, appointed in April 2011, did not last two years. He was even more forthright in his own memoirs, Worthy Fights, which bemoaned how the president “relies on the logic of a law professor rather than the passion of a leader” and sometimes “avoids the battle, complains, and misses opportunities”.

The odds are that Hagel will follow suit and offer some choice words of his own. Back in October, a memo that he wrote to the national security adviser, Susan Rice, was leaked to the press (presumably by someone in his office). In it, he criticised US Syria policy for its lack of overall coherence. Counterclaims have since been made, suggesting that Hagel was getting his revenge in early – grandstanding with a view to posterity – because of an anticipated “shake-up” of the national security team. Rice was untouchable, as was Obama’s influential chief of staff, Denis McDonough. Despite tensions with the president over Syria’s chemical weapons and the collapsed Israel-Palestine peace process, the secretary of state, John Kerry, was too entwined in negotiations with Iran to be pulled out.

What was intended to act as an attempt to “reboot” the administration’s foreign policy is now an unseemly mess. The front-runner to replace Hagel, the former undersecretary of defence Michèle A Flournoy, swiftly ruled herself out. Some believe that Flournoy is keeping her powder dry for a position in a potential Hillary Clinton administration – and is unwilling to take up the poisoned chalice for what will be a very difficult two years. Earlier this year, Flournoy voiced some veiled and carefully worded criticism of the overall direction of strategy, just as Clinton has done – not outright rebellion but enough to set herself apart from Obama.

It was supposed to be different. During his race for the Democratic nomination against Clinton in 2008, it was widely publicised that Obama was much enamoured with a book by the historian Doris Kearns Goodwin, Team of Rivals: the Political Genius of Abraham Lincoln. In particular, Obama was impressed by Lincoln’s ability to bring former opponents into his team. This seemed particularly important in foreign affairs, which had been the subject of such bitter dispute under George W Bush. In came Clinton as secretary of state. Obama’s appointments of Bob Gates and Chuck Hagel were also symbolic. Both fitted a certain mould. They were Republicans who had served in Republican administrations but who were known to be critical of the excesses of the Bush administration – particularly the war in Iraq – and spoke to Obama’s purportedly “realist” credentials in foreign affairs.

If the idea was to create a broader, bipartisan basis of support, it failed. Regarded as something of a renegade, Hagel found his nomination a bruising process; as a result of Republican filibustering, his approval only just crept through the Senate. Gates and Hagel came to feel that they were there for window-dressing and that all major decisions were taken in Obama’s tight-knit kitchen cabinet. On a trip to Afghanistan during Obama’s first term, Gates reportedly erupted in rage when he discovered a direct telephone line between the military’s special operations headquarters and a top national security official in the White House, in effect cutting out the Pentagon.

In truth, Obama inherited many of his foreign policy headaches from his predecessor. One area of contention between the president and Hagel is reported to have been the latter’s foot-dragging over the closure of Guantanamo Bay, which remains open. What is beyond question is that the latest soap opera is a sign of severe dysfunction. The team of rivals has disintegrated, with many of them becoming a thorn in the president’s side as he limps on for a final two years.

Ed Miliband’s team – reportedly engrossed by Goodwin’s latest book, a biography of Teddy Roosevelt – might take note of the limits of historical analogy. 

John Bew is an NS contributing writer

John Bew is a New Statesman contributing writer. His most recent book, Realpolitik: A History, is published by Oxford University Press.

This article first appeared in the 04 December 2014 issue of the New Statesman, Deep trouble

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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