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Cameron's Achilles' heel

Can the Conservatives handle the economy? The current opposition front bench is the least financiall

Every few months an invitation arrives on my desk to a meet a member of the shadow cabinet at an event organised by the "Conservative City Circle". These events, held in distinctive City locations such as the Mansion House, are designed to introduce movers and shakers in the Square Mile to David Cameron, George Osborne and other senior Conservatives.

The "cocktail parties", as they are engagingly described on the group's website, are a direct descendent of the "prawn cocktail offensive" conducted by Tony Blair and Gordon Brown in the run-up to the 1997 election. The Blair-Brown approach was designed to demonstrate to the world of finance that Labour had changed. Not only had new Labour taken on the trade unions and faced them down, but a new Labour government would recognise the importance of finance to Britain's economy. The free-market reforms and privatisations of the Thatcher era, which had been so bitterly opposed, would be left intact.

What is curious about the Conservative City Circle's 1950s-style cocktail parties and working groups is that they are needed at all. Historically, the idea of the Tories having to reach out to business and the City would have been risible. Business flocked to the party's doors and few self- respecting FTSE 100 companies would have omitted their hefty donations to the Conservative Party or think tanks with Tory connections.

Conservative frontbenchers didn't need to reach out to the City to be known and trusted, because they were of the City. The old merchant banks, such as N M Rothschild, were hothouses of Conservative talent. Not because they were inherently political, but because a City training in bids and deals, trading, privatisations and the like was considered an excellent education for future politicians. The idea was to establish a career, make enough money if possible and then put those talents to use in the House of Commons and government.

How much things have changed. When Peter Buckley, chairman of the publicly quoted Cayzer family vehicle Caledonian Investments (which owns a big stake in the investment bank Close Brothers), chose earlier this year to attack Labour and support the Tories, he attracted a torrent of criticism from corporate governance mavens.

In a note to shareholders, Buckley wrote: "Shorn of integrity and economic competence, rooster Brown has even less feathers than rooster Blair and lacks the latter's knack of preening himself." He backed up his words with the promise of a £75,000 corporate contribution to the Conservatives.

In fact, one of new Labour's greatest achievements - or betrayals - has been its seduction of business and the City grandees. In the Blair-Brown era, the succession of top business leaders willing to serve as policy advisers was stunning. And it hasn't stopped under Brown and Darling,

It was no coincidence that the rescue of Halifax Bank of Scotland (HBOS) by Lloyds TSB was partly cooked up a City grandee - Sir Victor Blank, chairman of Lloyds - in a "chance meeting" with the Prime Minister at a reception hosted by Citigroup, one of the world's largest banks. Nor that the top figures at both banks - Blank and Lord Stevenson, chairman of HBOS - are both regarded as business pals of Labour.

Indeed, the former chief executive of Halifax, Sir James Crosby, is the person Labour is counting on to deliver groundbreaking reforms to Britain's creaking mortgage market.

The remarkable fact is that the current Tory front bench, which within 18 months could be assuming the reins of political power at a moment of unprecedented economic turbulence, is among the least City-savvy in a generation. This is why it needs to go out and look for financial and business experience through the "City Circle".

"The problem for the Conservatives is that the front bench is largely made up by a new breed of professional politicians who know very little about anything except PR and politics," remarks Dr Andrew Hilton, director of the independent think-tank, Centre for the Study of Financial Innovation (CSFI).

Hands-on experience

Hilton is scathing about the current Conservative leadership. "The lack of financial experience is a big lacuna. The route now is straight out of Oxford and Cambridge, into PR or political research and, before you know it, they've made it on to the front bench," he says. Asked to name a prominent Tory with the requisite financial experience, he could only suggest David Gauke, MP for South West Hertfordshire, who worked for a leading City law firm, but hardly registers among the top-ranking Conservatives.

Among the new Tory frontbenchers, David Cameron, the son of a stockbroker, is one of the few who can claim that knowledge of the financial world courses through his veins. His hands-on business experience stems from his short period as communications director of the tele v ision franchise Carlton, now part of ITV.

His time at Carlton stored up troubles for Cameron among the notoriously hard-to-please financial press. The BBC's influential former business editor Jeff Randall, now an editor-at-large for the Daily Telegraph, is among his sternest critics. "In my experience," he noted in the paper, "Cameron never gave a straight answer when dissemblance was a plausible alternative."

The shadow chancellor, George Osborne, also has a "trade" background. The quoted family firm Osborne & Little is a favourite among interior designers for its catholic collection of wallpaper and soft furnishing designs. Osborne is thus familiar with the travails of medium-sized firms in a globalised world and, to his credit, he has surrounded himself with informed thinkers such as Matthew Hancock, formerly of the Bank of England.

When the Northern Rock crisis first broke a year ago, Osborne was quick to embrace the idea of an old-fashioned Bank of England-organised rescue, where City banks would offer a lifeboat to a failing bank. This is precisely what has happened with Alliance & Leicester, Bradford & Bingley and, most recently, HBOS. Osborne was also supportive of Mervyn King's proposals for a strengthened deposit insurance scheme at a time when Labour has dithered and delayed.

But there is no hiding the fact that, unlike previous Tory shadow and real chancellors, his experience and knowledge of finance is negligible. Oliver Letwin, shadow chancellor under Mich ael Howard, may have lacked political gravitas, but he came with the stamp of N M Rothschild. Ken Clarke was a heavyweight political operator with commercial experience gained as a lawyer, and John Major had climbed through the ranks at Standard Chartered, one of the nation's most successful banking concerns. Even Norman Lam ont could boast a career at N M Rothschild from 1968 to 1979.

As PM, Margaret Thatcher was surrounded with people with serious City and business experience. Peter Walker was a junior partner in the asset-stripping bank Slater Walker, William Waldegrave was a Dres dner Kleinwort Benson veteran, Michael Heseltine an entrepreneur who founded one of the UK's most successful private companies, Hay- market Publishing, and so on. Thatcher also had her late husband Denis, a former senior executive of his family business Burmah Oil (since swallowed up by BP), to whisper in her ear.

David Davis, a senior executive at Tate & Lyle, was one of the few business heavyweights in Cameron's shadow cabinet, but he now adorns the back benches after his decision to seek re-election on an erosion of freedoms platform. The shadow trade secretary Alan Duncan boasts a period as an "oil trader" on his CV. But one would been hard-pressed to judge, from his performance on the BBC's Question Time a week ago, what his understanding is of the scale of the financial crisis facing Britain.

Among the leading City figures now at Cameron's elbow is Michael Spencer, the extrovert chief executive of Icap, an electronic broker and City derivatives trading firm which has been suggested as a potential merger partner for the London Stock Exchange. As treasurer for the Tories, Spencer has been in perpetual motion in recent times.

When I visited him at his offices in the months after the credit crunch hit, he was entertaining an exclusive group of high-street bank chairmen whom he was seeking to persuade of the wisdom of supporting Cameron and his team. His success in the City, in one of the most volatile periods of recent times, has won him credibility among his fellow financiers. He is also one of the City's most accomplished philanthropists, with a particular devotion to Africa. But because of recent personal problems, it is unlikely that he will play a very prominent role at conference.

At a time of unprecedented financial turmoil, almost certainly the greatest banking crisis since the Great Depression, Tory expertise in the increasingly complex and globalised world of finance seems thin on the ground. Vince Cable, the Liberal Democrat economic spokesman, demonstrated throughout the current crisis that it is possible constructively to oppose and come up with credible ideas without talking the economy down. But Cable has hands-on knowledge of business from his period as chief economist of Shell.

The Conservatives' failure to say anything significant about the current catastrophe is unsurprising, when it falls so far outside the comfort zone of their present front bench.

This article first appeared in the 29 September 2008 issue of the New Statesman, The crash of 2008

Edel Rodriguez for New Statesman
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Rehearsing for war

From the Middle East to North Korea, Donald Trump is reasserting US military strength and intensifying the rivalry among the great powers.

As Vice-President Mike Pence arrived in South Korea from Washington on Sunday, he announced that the “era of strategic patience”, in which the US sought to monitor and manage the nuclear threat from North Korea without pushing the matter for fear of escalation, was over. “President Trump has made it clear that the patience of the United States and our allies in this region has run out and we want to see change,” Pence declared. The heat under a crisis that had already been bubbling ominously was turned up another notch.

Much has been written in recent years about the stability provided by the post-1945 world order and the dangers of letting it crumble. The conflict in Korea provided the first big test of that order almost 70 years ago, but the difficulty was never really resolved. It remains the proverbial “wicked problem” in international affairs, “frozen” in an obsessively monitored and deeply uneasy stalemate, demarcated by the Demilitarised Zone: a line 160 miles long and roughly two and a half miles wide scored across the middle of the Korean Peninsula, drawn with superpower supervision in 1953. Partition has allowed a strong and ­successful state to flourish in the South while the North has survived in a state of ­arrested development.

The problem has been passed down from generation to generation because attempting to solve the issue risked opening a Pandora’s box. The risks included the unleashing of huge military force, potential world war and a refugee crisis on a scale that could severely destabilise even China. By the 1990s, it was clear that the North Korean regime had fastened upon another strategy for survival as the Cold War passed into history and its sponsors in Beijing and Moscow began to question the value of such an ally: the acquisition of nuclear warheads. Pyongyang has long had the firepower to flatten Seoul in a matter of hours. The mission since has been to develop its missile technology to carry that material as far as possible – certainly to Japan, but ideally also to the west coast of the United States.

The day after Pence’s announcement, the US and South Korea undertook a joint air and army exercise to ensure readiness in the event of an attack from the North. This followed a joint naval war game earlier in the week and the US decision to send a navy group led by the nuclear-powered aircraft carrier USS Carl Vinson, which Donald Trump described as an “armada”, to the region. No sooner had the fleet appeared than Japanese sources reported that it had been followed by Chinese and Russian submarines as it entered North Korean waters. Such are the great-power manoeuvres of the 21st century – whether on air, sea or land – in which the world’s most potent military machines shadow the moves of their competitors, and openly rehearse for war.

***

Asia has not had a major inter-state war since the 1970s but it is not immune from the tragedies of power politics that have beset other rapidly developing parts of the world. Across the region, military spending is rising fast as states jostle in anticipation of a changing balance of power.

The purpose of Pence’s Asia-Pacific tour is to offer reassurance to America’s allies in the region, which have been watching the rise of China, in particular, with trepidation. The stark change of tone emanating from the White House – and change of gear – has been noted. After years of steady consistency in US grand strategy, there is a sense of a building crisis and the Americans are being watched in anticipation of their next move more closely than they have been scrutinised in many years.

Before he left South Korea, Pence also visited Panmunjom, where the 1953 armistice was signed at the end of the Korean War, as well as Camp Bonifas, a UN military compound near the Demilitarised Zone, set up to monitor the ceasefire that followed. It is an eerie echo from the past that Pence’s own father served in the war that divided the country. Edward Pence was awarded the Bronze Star on 15 April 1953 for heroic service. The vice-president proudly displays the medal, and a photo of his father receiving it, in his office. He is no doubt aware of the costs of a conflict in which an estimated 36,000 of his countrymen were killed.

Just over a thousand British soldiers also lost their lives in the Korean War after being sent to fight in a joint UN force. But it was far more deadly still for the peoples of the Korean Peninsula, killing more than a million people, including 400,000 troops for the People’s Volunteer Army, among whom was Mao Anying, the eldest son of Chairman Mao, the leader of the Communist Party of China and protector of the North.

History throws up strange parallels. When the Korean War began in 1950 it was understood to be the first serious test of the international system established after the Second World War. It is striking just how many of the same ingredients remain, including the identity of some of the main protagonists. On 25 June 1950, a border conflict between North and South Korea escalated into full-scale war when Kim Il-sung’s Korean People’s Army – backed by China, and with the tacit support of the Soviet Union – invaded the Republic of Korea in the south, claiming that it represented the legitimate government of all Korea. This is a claim that the regime of his grandson Kim Jong-un has not abandoned to this day.

Two days after the invasion, on 27 June, the UN Security Council voted to send a joint force, under General Douglas MacArthur of the US, the former supreme commander of Allied forces in the south-west Pacific area, to protect the sovereignty of the South and repel the invaders. Much more was at stake than the question of territorial integrity or preserving international law. By bringing the Americans into confrontation with the Chinese – and with the Russians seen to be the steering hand in the background – the conflict had all the ingredients for rapid escalation.

From the start, there were concerns that the Americans might overdo the brinkmanship, even under the cautious leadership of Harry Truman. Fears that the self-confident MacArthur would exceed his brief were confirmed when the UN forces pushed back into North Korea in October. In response, the Chinese Communists, who believed that MacArthur had designs on China itself, flooded across the Yalu River in their tens of thousands.

It was in the autumn of 1950 that the danger of another world war, this one involving nuclear weapons, reached its peak. On 28 November, after a grave reverse for the UN forces, MacArthur stated that the advent of 200,000 Chinese had created “an entirely new war”, with much higher stakes than before. Suddenly, the prospect that the US might resort to using an atomic bomb against the North Koreans, or even the Chinese forces, seemed plausible.

While the nuclear scare passed, the war rumbled on towards an ugly stalemate over the next three years. A temporary solution of sorts was found with the 1953 armistice. But there was no resolution to Korea’s frozen war. In a way that no other totalitarian state has managed, the North zipped itself into a hermetically sealed chamber, preserving a three-generation dictatorship that is both comically anachronistic and frighteningly modern in its missile technology.

***

Some of this complicated backstory was explained to Donald Trump by China’s president, Xi Jinping, during his recent visit to the United States. Trump – who had been pressuring China to do more to deal with the North Korean regime – appears to have been receptive to what he heard.

“After listening for ten minutes,” he said, “I realised it’s not so easy.”

This is the first critical test of the “new era in great-power relations” which Xi has been floating for a number of years, but Trump has now decided to put to the test. According to Trump’s most recent tweets, Beijing has continued to work with the US on the North Korea problem. He has welcomed its contribution but insisted that America’s own willingness to deal with the problem does not depend on China. In other words, there is no master plan being played out here, even if – as seems credible – America did hack North Korea’s latest missile launch to make it a damp squib.

The Trump administration is not creating the conditions for a new long game, building a fresh multilateral consensus to contain the North Korean threat. Instead, with a newfound sense of momentum serving as a tail wind, it senses a moment to “solve” one of the longest-running and most treacherous problems in international affairs. It has decided, at the very least, to severely clip the wings of Kim Jong-un’s regime. And in doing so, it has set out to demonstrate that when America speaks, it speaks with effect.

Like much current presidential policy, “the Trump doctrine” is being made on the hoof. Much of the hyperactivity of the past month or so was not scripted but emerged in response to overt challenges – beginning in Damascus and panning to Pyongyang – to the United States and the “red lines” it has laid down in the past. One foundation stone of Trump’s approach to the world is firmly in place, however: the willingness to reassert US military power with swift and decisive effect. The idea that the “America First” slogan implied anything resembling isolationism is crumbling. The growing sense that it does imply unsentimental and unvarnished power politics in the name of the US interest rather than multilateral niceties is closer to the truth.

Under Barack Obama, the US sought to withdraw from those areas in which he felt that the US had overstretched itself under his predecessor. Obama opted for a more rapier-like and cost-effective form of power projection. He drew down from formal military operations in Iraq and Afghanistan, while presiding over a huge uptick in drone warfare, cyber capabilities and selective but deadly use of special operations. Much of the full range of US power was submerged in various “secret wars”, and the diplomatic compass was reset to pivot east. This was because, as a legacy of the 9/11 attacks, national security was geared towards the containment of an elusive and amorphous enemy – various offshoots of the global jihad movement – that operated on the periphery of America’s radar.

But the real metrics of great power are those now on display off the coast of North Korea. For all the advances in drone technology, the missiles that cause the gravest threats to humanity are those on the scale that the North Korean regime is attempting to build. Trump’s test was one that a president of the United States would have to face sooner rather than later.

Not since Ronald Reagan has the US been so willing to engage in naked displays of its own military potency in quick succession – and seek to gather diplomatic yields from them as swiftly as possible. The past fortnight brought a missile attack on an airbase manned by the Assad regime – changing the tenor of US-Russian relations overnight – and the dropping of the so-called Moab (“mother of all bombs”) on an Isis affiliate in Afghanistan. The latter was a far cry from the “clear, hold, build” counterinsurgency operations in vogue half a decade ago. But it did fit with a campaign promise by the new president that he would “bomb the shit out of Isis” should the opportunity arise.

Does this fit into a wider pattern or constitute a new approach? The Trump administration is eager to leverage any opening that might have been created. In Seoul, Pence wasted no time in joining the dots: “the world witnessed the strength and resolve of our new president in actions taken in Syria and Afghanistan”. North Korea, he continued, “would do well not to test his resolve, or the strength of the armed forces of the United States in this region”.

It is the generals who have increasingly set the tone for Trump’s foreign policy. During the 2016 election campaign, he promised to give the Pentagon more leeway than it had under Obama to focus on “winning”. The new national security adviser, H R McMaster, and the defence secretary, General James Mattis, are now the steering hands.

Neither man has followed the rather crass and short-sighted fashion for running down diplomacy. Mattis once said that if the state department budget was cut, he would need more ammunition. McMaster is an urbane thinker who knows that the use of force must always be carefully calibrated and is just one tool in a continuum of factors. In this respect, it is a problem that so many jobs in the state department remain unfilled. Now that muscle has been flexed, the experienced negotiators and diplomats should be flooding through the door.

***

The policy of “strategic patience” was based on an understandable calculation. But, in hindsight, it does appear that North Korea has suffered from neglect. Mitchell B Reiss, one of the most experienced diplomats who led efforts on North Korea in the 1990s, notes that, despite unprecedented co-operation between the US and China in recent weeks, including open threats of economic pressure and military action, they were still unable to prevent North Korea from testing ballistic missiles on 16 April. Even though the missiles exploded immediately after lift off, “The failure of Washington and Beijing to stop the test in the first place has important implications for the Trump administration’s future policy options and for stability in north-east Asia.”

In Reiss’s view, it is “highly unlikely that the North can be cajoled, threatened or given incentives to surrender its nuclear weapons”. The uncomfortable truth is that “short of regime change, which could inflame the entire Korean Peninsula in war”, the US cannot halt the North’s nuclear weapons programme. But that does not mean there are no options. Slowing the pace and raising the costs would be “prudent steps”. More, too, could be done, Reiss says, to “interdict imports of sensitive technologies, to sanction Chinese and other nationals who act as purchasing agents for the nuclear and missile programmes, and to punish Chinese banks that help finance these programmes through so-called secondary sanctions”.

In the end, so much comes down to US-China relations. Could this be the basis for a reset and a new accommodation between Beijing and Washington? How much further is China willing to go to use its leverage on the North, which depends on it for energy and food? And how patient will the Trump administration be if its new strategy does not yield tangible results of the sort that are sometimes elusive in the long and often open-ended game of deterrence? 

John Bew is a New Statesman contributing writer and the author of “Realpolitik: a History” (Oxford University Press)

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 20 April 2017 issue of the New Statesman, May's gamble

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