Brookings: Topics - United Kingdom

Scotland as a Good Global Citizen: A Discussion with First Minister Alex Salmond

Tue, 09 Apr 2013 10:30:00 -0400

Event Information

April 9, 2013
10:30 AM - 12:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

In an historic referendum set for autumn 2014, the people of Scotland will vote to determine if Scotland should be an independent country. The decision on Scottish independence will carry with it far-reaching economic, legal, political and security consequences for all of the United Kingdom (UK). The debate about Scottish independence will also be watched closely across the continent of Europe. An independent Scotland would have to review its relationships with the rest of the world, including its priorities in foreign and diplomatic affairs and its memberships of international organizations such as the European Union.

On April 9, the Center on the United States and Europe at Brookings (CUSE) hosted First Minister Alex Salmond, MSP, leader of the Scottish Government, for an address on Scotland’s future as an independent nation. In his remarks, First Minister Salmond discussed the Scottish values and principles that would shape a modern, independent Scotland and the choices and opportunities that would characterize Scotland’s contributions to the world. The Right Honorable Alex Salmond has served as first minister of Scotland since 2007. He first became a member of the Scottish Parliament in 1999 and has served as the leader of the Scottish National Party (SNP) since 2004. Salmond was first elected as a member of the UK Parliament in 1987 and served until 2010.

Vice President Martin Indyk, director of Foreign Policy at Brookings, provided introductory remarks, and Fiona Hill, director of CUSE, moderated the discussion.

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UK's Euroscepticism Could Cost Britain Power

Thomas Wright — Wed, 27 Mar 2013 00:00:00 -0400

The idea that Britain should use its influence to remake the European Union is not an unreasonable one. There is a strong argument that the EU is on an unsustainable path — the eurocrisis is creating a dangerous divide between the periphery and core, the eurozone is encroaching upon the EU, there is a yawning gap between the people and their leaders, and Europe has much to do if it is to be competitive in a world dominated by the US and China. Britain is a country with the diplomatic skill and heft to move the EU in the right direction.

Unfortunately, this idea is not on the table. What prime minister David Cameron has offered is a referendum that strikes many international observers as diplomatically irrational.

Regardless of the pros and cons of membership, the four-year wait till a vote is held creates immense uncertainty about the British economy and Britain's role in the world. Investment decisions, diplomatic engagements and countless other initiatives will be placed on hold as long as it is unclear whether Britain will be in or out.

However, there is an even greater risk with the prime minister's approach. It is much more likely to lead to an exit than his publicly stated position suggests. Cameron has promised a vote if he renegotiates the terms of Britain's membership with the European Union. This way, he can have it both ways — rail against the status quo, but claim he is in favour of membership.

By implication, he has not promised a vote if he is unable to renegotiate the terms of membership. This is a rather gaping loophole. From the perspective of the rest of the EU, the easiest path is to refuse to renegotiate — hence, no referendum and no risk of Britain leaving. And it appears as if this is exactly what is happening.

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Authors

Thomas Wright

Publication: Politics.co.uk

Image Source: © Reuters TV / Reuters

Cameron’s Speech Raises More Questions Than Answers

Thomas Wright — Thu, 24 Jan 2013 15:00:00 -0500

British Prime Minister David Cameron’s speech on the future of Europe promised a referendum on Britain’s membership of the European Union but it left more questions than answers.

Cameron says the referendum will take place after a renegotiation of Britain’s terms of membership and that he will lead the yes campaign. But, this leaves a rather gaping loophole. If the renegotiation fails to deliver a satisfactory result, will he hold a referendum anyway and campaign for an exit? Such a promise was missing from the speech. If he does not intend to hold a referendum if renegotiation fails, then the rest of Europe is heavily incentivized to do nothing. After all, refusing to renegotiate means no referendum whereas renegotiating means a vote with a chance of British exit. In the coming months this will become increasingly apparent and Cameron will be under pressure to commit to leading an exit campaign if the renegotiation fails. Promising to lead an Exit Campaign if his demands are not met will significantly up the ante.
British leverage in the renegotiation comes from the prospect of exit. The uncertainty gives Britain bargaining power. Therefore, the Cameron government has an incentive to make exit a credible threat and to deliberately increase uncertainty. He will have to develop real and substantive plans for a British withdrawal. He may also have to mobilize public opinion against the status quo. If he avoids these steps, how does he propose to gain leverage in the negotiations? How will investors react to a strategy designed to unleash Euroskepticism and can the genie be put back in the bottle after a messy compromise?
Cameron’s speech ensures that Britain’s efforts will be dedicated to repatriating powers rather than shaping the next steps of European integration. Britain has traditionally been a powerful voice in favor of markets, competitiveness, and a strong alliance with the United States. How will Britain’s absence from the debate on further integration affect the direction Europe takes? The repercussions could be felt on everything from a Tobin Tax to the arms embargo on China. A related question pertains to Britain’s legitimate interest in protecting itself from the risk that Eurozone integration will damage the single market. It remains to be seen if this interest will be advanced or damaged by his referendum promise.
Cameron intends to fight the next election on his referendum promise. Will Labour take him up on his offer or, if Cameron’s position proves popular, will its leader Ed Milliband move closer to the Conservatives and promise a referendum of his own? Press reports over the past 24 hours suggest that Labour is divided and has not yet made up its mind. If Labour is backed into a corner and promises a referendum of its own, the conservatives are highly likely to end up on the exit campaign, thus exponentially increasing the risk of Britain leaving the European Union.
How will the United States react? In recent weeks, the Assistant Secretary of State for Europe, Philip Gordon has made clear that the Obama administration favors Britain remaining in the European Union. Will the Obama administration go a step further and show that a British exit would damage the special relationship? Will it put some pressure on Germany and France to meet the British halfway? Finally, the British referendum may occur after President Obama leaves office. Republicans have traditionally been much more skeptical of the European Union. Some Republicans, like John Bolton, have openly rooted for the collapse of the Eurozone. If a Republican succeeds Obama, will he or she seek to give Britain a lifeline outside of the European Union, thereby increasing the likelihood of an exit?

David Cameron’s much heralded speech was somewhat half-baked. It raises new questions and it is not clear Cameron has the answers. He will come under pressure to clarify his position. Others also find themselves in the spotlight. The answers provided in coming months could dramatically escalate the standoff that now threatens to define European politics for the next four years.

Authors

Thomas Wright

Image Source: © Pascal Lauener / Reuters

Eurozoned Out

Justin Vaïsse and Thomas Wright — Thu, 17 Jan 2013 00:00:00 -0500

The euro crisis has been ongoing for three years and the European Union is beginning to get its act together to build a sustainable monetary union. But risk of failure still remains and in turn could be devastating to the U.S. economy. Justin Vaïsse and Thomas Wright wrote this memorandum to President Obama as part of Big Bets and Black Swans: A Presidential Briefing Book.

How can the United States shape EU fiscal policies without being a member?
Why should the United States encourage the U.K. to remain a member of the EU?

Download Memorandum (pdf) | Download the Presidential Briefing Book (pdf)

TO: President Obama

FROM: Justin Vaïsse and Thomas Wright

The Eurocrisis has been ongoing for three years and the European Union is beginning to get its act together to build a sustainable monetary union. But, the euro is not out of the woods yet. Real dangers remain. The underlying causes of the crisis have not been addressed. The politics are pulling in a different direction from that required for a solution. Populations on the periphery are suffering from austerity measures and see no end in sight. Those in the so-called core (Germany, Northern Europe) feel exploited. The Eurozone is building new structures but they may not be sufficient to protect it against a future major crisis.

As long as an optimal solution remains elusive, the risks of failure will remain. If failure occurs, it could be devastating to the U.S. economy, surpassing the crisis of 2008. Some estimates project that the collapse of the euro would cause an immediate 10 percent loss of GDP for the global economy, with unemployment in the European Union reaching 20 percent and spiraling inflation on the EU’s periphery. The United States and European Union are the two largest economies in the world and they are inextricably linked with each other through trade, foreign direct investment (FDI), and financial markets. For instance, 50 percent of U.S. FDI abroad goes to the European Union while 62 percent of FDI into the United States originates in the European Union. The rest of the world would also be adversely affected, particularly the Middle East and China, the world’s second largest national economy, both of which require robust growth to maintain domestic political stability.

A secondary but related danger is that the construction of a new Eurozone could lead to the fracturing of the European Union through a British withdrawal. The United Kingdom is extremely concerned that further integration in the Eurozone will damage its interests as an E.U. member. Public opinion also favors a renegotiation of the United Kingdom’s terms of membership even though such a renegotiation would be strewn with difficulty and would likely fail. In this scenario, the Eurocrisis would remove America’s most reliable European ally from the EU and lead to a weakening of Europe’s capacity to act as a coherent unit in world affairs.

Recommendation:

The United States can neither compel the Eurozone to adopt particular structures nor do much to protect the Eurozone from a political backlash in austerity-stricken countries. However, the United States can perform an important service in two respects. You should task your administration with analyzing the risks associated with the EU’s plans for financial and fiscal integration and share these assessments in confidence with the EU’s leaders. If necessary, senior administration officials could go public to shape opinion in the financial markets and in European states. In the 1990s, Europeans built a flawed monetary union. Eurozone 2.0 may have new structural weaknesses that will be exposed by the next crisis, whenever that occurs. These weaknesses will undoubtedly be the result of political constraints in the member states. The United States has an important role in raising awareness of these risks so Eurozone 2.0 is as effective and robust as possible.

Second, you should take a position opposing the withdrawal of the United Kingdom from the European Union. The United States can work with the United Kingdom and other members of the European Union to head off this possibility. Most importantly, the United States should emphasize the importance it places on having the United Kingdom inside the European Union, acting as a transatlantic bridge and strengthening Europe’s voice in world affairs. You should avoid any statements or policies that lead Britons to believe that an exit would result in a closer relationship with the United States that would offset any loss in influence. You should also consult closely with your European counterparts to ensure that the appropriate steps are taken to encourage the United Kingdom to remain a full member of the European Union.

If the black swan of a collapse of the Eurozone does occur, the risk of contagion in the global economy will be extremely high and it will be necessary to return to full crisis mode, as experienced in the fall of 2008, to do what is necessary to protect the financial system. This will be even more difficult than after the fall of Lehman Brothers because the collapse of the euro would create a shock of much greater scale and because the U.S. Congress may be reluctant to help foreign governments, even though it would be necessary to protect the U.S. financial system. Nevertheless, it will be your only viable option.

Background:

To understand the risks of a Eurozone collapse in the next four years, it is necessary to distinguish between the first phase of the crisis that concluded in 2012 and the second phase that has just begun. In the first phase, European governments had to decide whether to keep the euro intact or not. The key question amid market turbulence was whether the Eurozone would construct the mechanisms necessary to keep the periphery four (P4) — Greece, Ireland, Portugal, and Spain — inside the single currency. These mechanisms were expensive and politically difficult. But, this is exactly what the Eurozone decided to do. With bailout mechanisms like the European Stability Mechanism and the Stability Treaty and bold action by the European Central Bank under the leadership of Mario Draghi, the Eurozone mitigated the most destabilizing elements of the crisis. This happened for a simple reason—every leader calculated that the risks of a fragmentation of the Eurozone massively outweighed any benefits.

The second phase of the crisis is different. The question of whether EU leaders want the Euro to remain intact has been settled. But, they now face two crucial challenges. First is the danger that political and economic accidents related to the current crisis will threaten the survival of the Euro. It will take some time to build a new Eurozone. During this period, much of the European Union will be in recession or experience stagnation. Member states will disagree strongly about the future course of action. Elections are likely to be fought on these issues and they could bring to power radical parties with rejectionist policies. The result may be a political crisis that leads to an inadvertent fracturing of the Eurozone followed by contagion and a disorderly collapse.

The issue of UK membership is a related component of this first challenge. Although it is not in the Eurozone, the United Kingdom feels threatened by further European integration. Both of the U.K.’s leading parties, the Conservatives and Labour, appear on track to offer the British people an inor- out referendum, following an attempt to renegotiate the UK’s terms of membership.

The second challenge is that the Eurozone’s new structures may be insufficient to cope with a future crisis. European integration is the art of what is politically possible. But economies are not rewarded for trying hard. Their institutions need to function effectively under conditions of extreme duress. Monetary union without fiscal union was justified as the best that could be done given the political constraints and we know where that led. New structures bring new risk of design flaws, particularly in banking union, but also with respect to the perceived legitimacy of European institutions. A lack of democracy and accountability could lead to a political crisis down the road, especially if parts of the Eurozone are stagnant.

Conclusion:

A healthy global economy is a core interest of the United States. A stable and prosperous European economy is integral to that interest. For three years now, you have lived with the possibility that the collapse of the Eurozone could wreak havoc with the U.S. economy. You have also had to live with the fact that the United States has few options and no silver bullets. Quiet diplomacy and support has been your hallmark and it has been reasonably effective. You should not radically depart from this path but you should ensure it evolves to cope with the second phase of the crisis as outlined above. You should direct your administration to identify the potential vulnerabilities of reform proposals and to work with European governments, and others if necessary (public diplomacy aimed at the markets, multilateral efforts through the G-20), to prevent new failures of design. You should also use American influence to ensure that the United Kingdom remains within the European Union. These actions will reduce the probability of a black swan in Europe.

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Authors

Image Source: © Francois Lenoir / Reuters

Why the End of British Aid to India Won’t Matter

Raj M. Desai and Natasha Ledlie — Wed, 21 Nov 2012 11:10:00 -0500

The British international development secretary, Justine Greening, recently announced that all assistance from the UK to India will end by 2015. The withdrawal of foreign assistance from India’s largest donor affords an opportunity to reflect on the role British aid (indeed, all foreign assistance) has played in Indian economic development, and on how Indian anti-poverty programs will evolve in the absence of foreign aid.

The Indian beneficiaries of UK aid programs will inevitably feel the loss of the experimentation and risk-taking that characterized UK aid. On the other hand, India has also been moving away from more fragmented anti-poverty programs traditionally supported by donors towards more centralized, universal schemes. But these reforms require increasingly sophisticated management and accountability mechanisms — something donors have had limited success in supporting. While the absence of British aid may leave a small hole, it will not affect India’s anti-poverty efforts.

To put the aid stoppage in context, consider that UK assistance comprises about 15 per cent of all foreign aid received by India. The UK gives slightly less than 10 per cent of its foreign aid to India. This makes India the largest beneficiary of UK aid and the UK the largest donor to India. Given the current state of the British economy, it is only natural the UK would be forced to reconsider its assistance to fast-growing countries such as India. Indeed, other donors may soon follow suit, forced by fiscal constraints. In the U.S. foreign aid may be cut due to “budget sequestration”, under which all government programs will be subject to across-the-board cuts.

More than half of official aid from Britain to India went to programs focused on education, health, nutritional programs, and water and sanitation access. In relative terms, these are not large amounts (the $450 mission in total annual British aid was about 0.04 per cent of India’s GDP). Despite some prevailing views that the Department for International Development was merely a source of British “soft power” or that British aid simply supported British strategic and commercial interests, the evidence suggests that Britain has been one of the better-behaved donors. According to a joint assessment of the Washington-based Brookings Institution and the Centre for Global Development, DFID performs quite well when ranked against other donor agencies on measures of efficiency, institution-building in recipient countries, keeping administrative burdens to a minimum and ensuring transparency.

British aid was also an invaluable source of piloting, access to knowledge and risk-taking. The Business Innovation Facility funded by DFID is a decent example of this—a programme that supported companies as they developed and implemented “inclusive” businesses that expanded opportunities for the poor. This was an example of foreign aid at its best: a gateway to current information, a clearinghouse for insights on good practice, a resource for businesses, and of course, targeted financial support.

On the other hand, British aid—and most foreign aid—has achieved only modest success in helping countries such as India make the transition from a multiplicity of narrowly targeted interventions, transfers and subsidies to a comprehensive welfare system. Both bilateral and multilateral aid to India may be rightly criticized for placing too much faith in these narrower instruments.

Many observers have long pushed for more comprehensive social policies based on universal provision of essential services in India, and for less reliance on narrower social programs. The latter have not served India well. In the past two decades, for example, India has grown much richer than Bangladesh and Nepal. But during the same period, both countries have overtaken India in terms of life expectancy, infant mortality, fertility rates, immunization rates, and female literacy. India’s expansion has been characterized by Jean Dreze and Amartya Sen as “growth without development”. In recent years, the Indian government has moved to consolidate social policy through nationwide multi-sector programs such as NREGA. But the local bodies largely responsible for administering them continue to suffer from capacity weaknesses. It is in governance and institutional capacity-building at the local level that foreign aid has had less impact.

While few in India may shed tears over the end of British official aid in India, the occasion should also provide an opportunity to double efforts to reform the public institutions that govern social policy and poverty alleviation.

Authors

Raj M. Desai
Natasha Ledlie

Publication: The Indian Express

Image Source: © Reuters Photographer / Reuters

British Muslims Split Along Sectarian Lines Over Arab Uprisings

H.A. Hellyer — Mon, 05 Nov 2012 00:00:00 -0500

For more than a decade I have been studying the community dynamics of Muslim Britons. Their views on the Arab uprisings are intriguing: sectarian fears, disappointments, scepticism, hope and ethnic concerns are all there.

Muslim British community activists have not ignored the Arab uprisings. They could not have. The Arab world is at the heart of the Muslim world.

True, most Muslim Britons do not have Arab ethnic backgrounds, and most have evolved to become essentially "post-Islamist". Post-Islamism, in this sense, means their initial impetus for engaging in political life was from an emotional attachment to Islamism, but they have a secular rationale in the public arena that is not dissimilar from British social conservatives. But many of them have roots in Islamist community organisations and links, if only symbolic ones, to the Muslim Brotherhood.

So even the many Muslim Britons who are post-Islamist are deeply interested in the Islamist project in power, and in the challenges that project finds in Egypt and Tunisia, in particular.

There are, of course, differences of opinion. Many ordinary Muslim Britons of Pakistani descent, for example, now consider Pakistani politics to be utterly hopeless - and instinctively assume that the political state of the Arab world is likewise impervious to constructive change.

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Authors

H.A. Hellyer

Publication: The National

Image Source: © Chris Helgren / Reuters

The Archbishop of Canterbury and the Importance of Muslim-Christian Understanding

Akbar Ahmed — Wed, 17 Oct 2012 00:00:00 -0400

The proximity to a great spiritual master is always inspiring. And perhaps there are few masters as eminent as the archbishop of Canterbury.

On October 8, 2012, my daughter Amineh Hoti and I had been invited to participate in what was probably the last major public event of the Most Rev. Rowan Williams during his ten-year engagement with Muslims as the archbishop of Canterbury. The event was held at Lambeth Palace, the archbishop’s London residence. The who’s who of Britain was there including the archbishops of Wales and Ireland, several bishops and Baroness Sayeeda Warsi, the first-ever female chairman of the Tory Party. Also present was my dear friend James Shera, MBE, a Pakistani Christian, the first Pakistani mayor of Rugby and the only Pakistani in the United Kingdom with a road named after him.

The lectures of the archbishop to Muslim audiences in Egypt, Libya and Pakistan had been compiled into a volume and translated into Urdu and Bengali. The translations were presented that day to the archbishop along with glowing speeches made by Muslims recording the contributions of the archbishop in promoting interfaith dialogue.

The archbishops of Canterbury have been at the center of English history. Their clashes with the reigning monarchs in attempting to preserve the primacy of the church are legendary. In the 12th century, Henry II prompted the murder of Thomas Becket in the church itself and Thomas Cranmer, who helped build a case for Henry VIII’s divorce from Catherine of Aragon, was executed in the 16th century, but not before he compiled the English Book of Common Prayer. Balanced against this, however, have been the many occasions when the church has reached across sectarian lines to embrace those of other faiths.

Given this storied history of the position of the archbishop of Canterbury and his standing in British culture, it is significant that Archbishop Rowan Williams’ final public event would promote interfaith dialogue between the Christian and Muslim faiths. Special significance was given to Christian-Muslim understanding in Pakistan, and I had been asked to deliver the keynote address in the afternoon session.

We had lunch in the State Drawing Room where the past met the present. Thomas Cranmer looked down on us dolefully from a painting and a radiant Prince William and Kate Middleton had signed their picture for the archbishop.

In the middle of this most hectic of days, the archbishop graciously gave my daughter and me a private interview. He had always been a particular supporter of my daughter. He came to Cambridge to launch her book project “Valuing Diversity: Towards Mutual Understanding and Respect” at Michaelhouse, one of the oldest educational centers in the UK. The book is a valuable learning resource and useful tool to promote understanding. Some 2,500 schools now use it.

When I asked him what he felt was his greatest achievement after a decade as the archbishop, he talked of the educational development programs for schools. He has always been an advocate of faith-based development projects. His calm scholarly exterior was ruffled once only when I raised the issue of the dreadful film made in Los Angeles which insulted the prophet of Islam.

When I asked if he had a message for Americans about promoting better understanding with Muslims, he said, “We need higher standards of civility” and “we need a higher standard of public education.” Without these, society itself breaks down and all the efforts in interfaith dialogue are thus jeopardized.

He advised Americans “to watch Muslims pray.” When people watch others of different faiths in prayer we understand them better. It is the best way to build bridges. “Don’t see religion as a political entity but in its own context,” he said. Americans need to be in touch with Muslims including through the use of e-mails. That is one way greater understanding will be created.

The archbishop pointed out that the earliest translation of the Koran was carried out by a Benedictine monk 1,000 years ago in Europe. The aim was “to understand our neighbors better.” Even though the reception was generally negative regarding the Koran itself, at least it established the importance of scholarship in understanding the faith of others.

For Muslims, his message was that such films are no more typical of Christianity than the Sept. 11, 2001 attacks was of Islam. The actions of small groups like the film makers must not be allowed to draw the global community into conflict which leads to so many unfortunate deaths.

Looking back at the contributions of the archbishop at the end of his tenure as head of the Anglican Church, the archbishop will be perhaps best remembered in popular culture as the man who presided at Westminster Abbey over the most important wedding of this generation – the wedding of Prince William and Kate Middleton. It was estimated that some 3 billion people saw the ceremony on TV.

But, he will also be remembered for his bold intellectual initiatives in interfaith dialogue which created so much controversy when he raised the issue of sharia law and its compatibility with English law. Britain was in uproar. Even prominent Muslim leaders – in both parties – attacked the idea. The sharia controversy confirmed that here was a man of extraordinary intellect prepared to take logic where it led him.

But it convinced both Christians and Muslims that this man was a sincere explorer of the truth regardless of the path it took him on, well suited to his next position as a master of a Cambridge college.

The archbishop was justifiably proud of his record in interfaith dialogue. He told us that whenever he is in Europe people point out that the UK is a model of interfaith understanding and ask him how can Europeans replicate the model.

Thanks to his goodwill Muslims at this final gathering felt completely at ease among their warm and welcoming Christian hosts.

At the end of the day, the Rev. Rana Youab Khan, the assistant to the archbishop in interfaith matters and the first Pakistani in history appointed on the staff of the archbishop, insisted on showing us Pakistani hospitality. Khan takes pride in the fact that he was educated in a madrassah in Pakistan. He is playing a vital role himself in bridge-building between the two civilizations. He talks of the archbishop with a mixture of awe and adoration.

Khan showed us around Lambeth Palace and its beautiful garden, the largest in London after Buckingham Palace. A large lush green fig tree in the main courtyard was given as a present from the patriarch of Jerusalem 500 years ago. Some parts of the palace date back to the 12th century. These buildings were old before Columbus set sail for America.

Then Khan, his wife and sons welcomed us to their rooms which are adjacent to the living quarters of the archbishop for a Pakistani meal. Afterwards, Bishop Mano Ramalshah, the Pakistani bishop of Peshawar, offered to drive us with characteristic warmth to the railway station at King’s Cross for the Cambridge train.

The day had begun with the English approach to spirituality which is through the mind – reason, logic and systematic argument. It ended with the Pakistani approach to spirituality which uses the heart – emotion, sentiment and intuition. The two halves of worship had come together.

At Lambeth Palace the east and west, Muslim and Christian, the mind and the heart had met for a brief moment. In that meeting I saw the hope for mankind.

Authors

Akbar Ahmed

Publication: The Washington Post

Image Source: © Paul Hackett / Reuters

Why Is Ecuador Protecting WikiLeaks' Julian Assange?

Andrés Rozental — Tue, 28 Aug 2012 00:00:00 -0400

Editor's Note: Several guest commentators, including Latin America Initiative senior fellow Andrés Rozental, responded to questions posed by the Inter-American Dialogue's Latin America Advisor. The full issue is available on their website.

Q: Ecuador's foreign minister announced Aug. 16 that the South American country was granting political asylum to WikiLeaks founder Julian Assange, who faces extradition to Sweden on sexual assault charges. However, authorities in Britain, where Assange has been holed up in Ecuador's embassy since June, have refused to grant Assange safe passage out of the country and threatened to revoke the embassy's diplomatic status. Ecuadorean President Rafael Correa said Sunday that Britain had withdrawn that threat. What are Ecuador's motivations for granting asylum to Assange? How does the decision affect Ecuador's relations with Britain, the United States and other countries? Are there larger implications of Britain's threats to revoke the embassy's diplomatic status?

Andrés Rozental: In the first place, Mr. Assange cannot really be considered a political refugee. He is accused of crimes in Sweden and the British authorities have committed to extradite him so he can face his accusers in a Swedish court. Assange appealed the extradition as far as British law allows and lost on each occasion. His decision to seek refuge in a foreign embassy in London represents a last ditch effort to avoid being sent to Sweden, from where he fears that he might be extradited to the United States to face charges related to the WikiLeaks case.

Since American jurisprudence contemplates the death penalty for acts of treason, which Assange is accused of committing when he released the Wikileaks material publicly, his argument for requesting asylum in a foreign diplomatic mission is that he fears for his life if Sweden ever decides to send him to the United States. Assange obviously chose Ecuador's Embassy in London for two reasons: first, because political and diplomatic asylum are a sacred institution among Latin American countries and as a rule asylum requests are granted, and secondly, given Ecuador's current government and a relatively hostile relationship with Washington, Assange correctly assumed that he would be granted asylum by a country that is not on the friendliest terms with the United States.

The British government's threats to withdraw diplomatic status from Ecuador's mission in London and enter the premises to arrest Assange created such a negative reaction, both inside the United Kingdom and abroad, that London was forced to retract them over the weekend. For the next step, one can only assume that British authorities will begin a process of negotiation with Ecuador to try to resolve the impasse, but in the meantime, Mr. Assange might become a semi-permanent guest of Ecuador's ambassador in London while a solution is found. If the Swedish government gives Assange guarantees that he won't be sent to the United States, that might open the way for a way out.

Authors

Andrés Rozental

Publication: Inter-American Dialogue's Latin America Advisor

Image Source: Olivia Harris / Reuters

Improving All Types of Saving With the UK's Expanded Retirement Savings Platform

David C. John — Wed, 01 Aug 2012 00:00:00 -0400

Editor's Note: this article originally appeared in the 2012 Print Version of AARP: The Journal.

Using one platform to offer a variety of services

Known in the UK under the term “corporate platform” to indicate that it expands options available on the employer’s benefit platform, the development allows employees to use the employer’s retirement savings mechanism to save and invest for additional nonretirement purposes. When the corporate platform is fully implemented, employees will be able to manage almost all of their investments and savings plans from one location, thus giving them a consolidated view of their entire financial status. If carried to its full potential, the expanded saving platform will allow employees to shop for savings products, among options that are available on the platform, instead of having to seek them out from individual suppliers—a search that often takes up work hours. Of even greater value, it gives employees one source to go to for individualized advice or financial literacy training.

The enhancement has special significance in the UK, where by fall 2012, the larger employers that don’t offer any other type of pension or retirement savings plan, must begin to automatically enroll their employees into basic retirement savings accounts. This requirement is causing a great deal of discussion about the future role of employer-provided benefits, as well as reconsideration of the fees and services included in a traditional package. The platform enhancements allow an employer to differentiate its employee benefit package from the required basic account structure. It also gives younger employees a benefit of more immediate value, than they would have from a retirement savings account that they won’t access for a good 40 years.

Presentations from a variety of service providers at an October 2011 summit hosted by Pensions Insight, a UK trade journal, showed that the platform can be easily customized to meet the special needs of a specific workforce. Using a single computer interface, employees can select from a wide variety of savings and investment options that are appropriate for their income level and stage of life. Thus, an upper income manager who manages his or her own finances could see more sophisticated products, while an entry-level worker sees more basic savings products. Live presentations by financial professionals who explain what is available on the computer platform add to the system’s value and increase its use.

A place to provide choice and to build financial literacy

The platform will have special value for moderate- and lower-income employees. While higher salaried employees may appreciate the opportunity to build their investments, the real value of the platform will be to enable moderate- and lower-income workers to find savings opportunities that they might otherwise miss because they don’t know where to go, are uncertain about what is a fair price, or for a variety of other reasons. Because employees tend to believe that services included on the corporate platform are implicitly endorsed by the employer, they usually have greater faith that the services are from legitimate providers at a fair price.

Employees at all levels can also use the site to receive guidance on individual products or basic financial literacy training. Individuals can choose from a range of options, from short videos on a specific topic by experts or fellow employees, to longer connected courses designed to meet the needs of specific age or income groups. Use is increased when employees receive emails or text messages geared to birthdays or other life events, or generated after the employee visits a specific part of the website.

Understanding the value of peer evaluations to motivate others, some providers include a place where employees can post feedback about specific products or savings choices. These postings help to guide other employees’ decisions and build the reputation of the platform as a source of unbiased information. The site can also include links to outside advisors who can answer specific questions, guide employees to another site for more information, or perform other services either online or over the telephone.

Differing age groups can be contacted and guided through different technologies. At the UK platform summit, David Harris, of Tor Financial Consulting, showed that younger employees preferred different communication methods than either older workers or the usual way employers provide information. However, the platform is able to use a wide variety of methods and is equally effective no matter which is used.

The platform’s value to international policy makers

Although the UK’s platform is intended as an enhancement to employer-provided benefits, it can also be used for a wide variety of policy goals, as the basic structure can be easily adapted to meet almost any nation’s specific tax and savings system. In the United States alone, policy experts have proposed dedicated savings accounts for nonretirement purposes ranging from unemployment benefits and retraining, home purchases, health care, and long-term health care coverage, to repaying student loans or building college balances for children or grandchildren. However, if all of these various accounts were established and funded, it is doubtful the employee would have any money left for food, clothing, and shelter.

Rather than having a host of specific savings programs, employees may be better served by more flexible accounts usable for a variety of purposes, as outside developments or changing needs dictate. The platform concept would allow individuals to choose which purposes they need to save for and how much to save for each. Combined with targeted guidance or education, this structure could expose individuals to possibilities they might not have considered before.

The structure is ideally suited to employment situations, but it could also be used by the self-employed or by consultants at sites aimed specifically at them and sponsored by trade associations, unions, or even government agencies. While their circumstances may preclude payroll deductions, the same products could be offered through direct debits to bank accounts.

The added value of nudge

The flexibility of the platform allows it to be used by employees with all levels of financial sophistication, but new participants would benefit from a variation on automatic enrollment that places certain amounts, in addition to the retirement savings amount, into a general savings account or similar vehicle. The automatic savings amounts deducted need not be large, and where the law allows, could vary according to employee age, with a larger proportion of the overall deduction going to nonretirement purpose for younger employees and to retirement for older ones.

As with automatic retirement enrollment, the employee would have the ability to vary amounts, divide the total among various accounts, and even stop all future contributions. However, automatic enrollment would offer workers direct experience with the nonretirement side of the platform. By varying enrollment in various accounts according to employees’ age, automatic enrollment could encourage them to consider saving for various purposes, such as a first home, college tuition for children, or additional health services.

Improving retirement security

Although the platform is applicable to a wide variety of other uses, its primary purpose is to build retirement security. Before retirement, the platform helps employees understand how to save, what they have, and how much more they need for a comfortable lifestyle. The other savings provide funds that can be used in the event of an emergency, thus helping to reduce leakage from retirement accounts in countries that allow early access to that money. At retirement, the platform helps individuals to see what other assets are available, and what loans or other liabilities must be factored in. In the UK, it is also being used to encourage individuals to use annuities and add them to their investments. The UK experience can help to guide US policymakers in their efforts to increase the use of similar products.

The enhanced information and flexibility of the corporate platform should help individuals to better understand their finances and how to meet their goals. It moves retirement savings plans from a minor part of employees’ financial lives, to a central feature that has many more uses than just an event many years in the future. This promotes regular use of the platform, and a fuller understanding of what is necessary for a comfortable retirement.

Authors

David C. John

Publication: AARP: The Journal

Mayors and the Fiscal Powers Needed to Deliver Change: Lessons from the United States for the United Kingdom

Bruce Katz — Thu, 29 Mar 2012 10:20:00 -0400

Editor's Note: This essay was first published in the Institute for Government's March 2012 report titled "What Can Elected Mayors Do for Our Cities?"

The 21st century will be an urban and metropolitan century, with cities and metropolitan areas acting not only as the engines of national prosperity but the vehicles for environmental sustainability and social inclusion. The challenge for many nations will be to reform governance powers and structures to fit the new urban and metropolitan reality.

With 10 mayoral referenda looming in May and broader localism efforts underway, the United Kingdom has recognized the devolution imperative. As these efforts proceed, it is helpful to reflect on the US experience of powerful cities and innovative mayors.

This essay will draw three primary lessons.

First, the innovation of US cities is not just about the creative freedom that mayoral governance brings, but the powers that are delegated to cities and elected officials. American mayors are innovative, in large part, because they have the power to raise and allocate substantial revenues. Thus, fiscal devolution must accompany the devolution of power and the direct elections of mayors.

Second, metropolitan areas, rather than cities, form the true geography of the economy.

As the UK referenda proceed, it is critical to square the direct election of mayors in core cities with the broader economy-shaping, talent-preparing and place-making efforts which must proceed at the metropolitan or even regional scale.

Finally, the demands on city and metropolitan leaders are growing as the global economy restructures, societies diversify and the public sector contracts. Building the capacity of a new empowered class of city leaders needs to be a prime focus of all sectors, delivered perhaps through a Devolution Academy operated independently from government, in conjunction with a major university.

The powers of directly-elected mayors in the US

The American federal republic diffuses power among different layers of government and across disparate sectors of society. Our union of states means that enormous power resides with the 50 states, which in turn devolve powers and responsibilities to local governments. Although the structure of local government varies considerably across the country, US cities and their mayors enjoy considerable powers, both formal and informal.

Most municipal governments in the US deliver a broad range of local services: police and fire protection, trash collection, parks and recreation, public library systems, support services for the youth and elderly, and, in some cities, schools. Cities help finance these kinds of services with locally raised revenues that they control. On average, 60% of local revenues are raised through a broad range of local tax schemes – property taxes, income taxes, business taxes, sales taxes, tourist taxes, and user fees.

Cities also help deliver a large number of programmes that are funded in large part by the federal or state governments. These range from overseeing the provision of affordable housing and workforce and community development programmes to implementing homeland security measures financed largely by the federal government. It should be noted, however, that mayors do not directly manage all of the aid that flows from the federal government. For instance, highway and transit funding is administered by state and metropolitan entities, and some affordable housing funding is controlled by state housing finance agencies or local public housing agencies.

Finally, cities have enormous ability to grow and shape their economies given their substantial control over local land use, zoning and planning. The design and implementation of these powers helps set the framework not just for the physical landscape of the city, but also the industry structure and residential and commuting patterns. How a city plans physically has a major impact on how it grows economically.

There is an inextricable link between fiscal devolution and the shaping of economies in cities and metropolitan areas. While US cities do receive support from federal and state governments, a large share of financing for local services come from revenues generated at the municipal level. Given these fiscal tools, cities are able to access the municipal bond markets and utilize innovative financing techniques, such as tax increment financing (TIF), to support specific economic development strategies and projects. Cities and counties also have the power in most states to go to voters with ballot initiatives to ask for bond issues or dedicated tax sources to support smart, targeted investments. All these financing tools leverage additional funding and resources from the private sector.

Against this backdrop, mayors play both formal and informal roles within cities. In many cities, Mayors are the CEOs of the local government, responsible for the overall management of city agencies and departments and the appointment of board members and even senior staff members to quasi public agencies. In other cities, mayors share managerial responsibilities with an appointed city administrator.

The less formal roles played by US mayors are arguably as important as the formal ones. Most US mayors, for instance, set the broader competitive vision for the city, in coordination with corporate, university and civic leadership, and develop strategies to achieve that vision. Mayors are then responsible for advocating for private sector investment as well as federal and state assistance in implementing this vision – in terms of spending, taxes, regulations, and administrative support.

Strengths and weaknesses of the US system

The devolution of fiscal powers is one of the great strengths of the American federalist system and one of the primary reasons why American cities are considered to be ‘laboratories of democracy’ and centres of policy innovation. There are, however, several drawbacks, especially during economic recessions, since federal and state governments rarely take corrective actions to shore up local finances.

Strengths

One of the main strengths of the US system is that cities across the US, armed with fiscal powers, have traditionally been at the vanguard of policy innovation on economic development, physical growth, education and social issues. Fiscal devolution enables cities to benefit from smart revenue enhancing policy choices rather than waiting for central governments to redistribute additional resources.

In New York City, for instance, Mayor Michael Bloomberg is working to diversify the city’s economy from an over-reliance on financial services, real estate and consumption by investing in assets that will drive productive growth. The Applied Sciences NYC initiative, the most ambitious effort underway, aims to boost tech research and development, spark job growth, and foster entrepreneurialism by establishing a state-of-the-art applied sciences and engineering campus in the heart of New York City.

To support this project, New York City has pledged up to $100 million as well as a 99-year lease for nominal rent on Roosevelt Island, directly adjacent to Manhattan. In December 2011, New York announced its decision to partner with Cornell University and Technion-Israel Institute of Technology to create the NYCTech campus. Beyond conducting classes and research on the Roosevelt Island campus, Cornell and Technion also plan to contribute to area K-12 education by training 200 science teachers each year. This project has the potential to help significantly diversify New York’s economy by expanding the innovation and research-driven industries that will create the businesses and jobs of the future.

Cities and their metropolitan areas have been particularly aggressive in the transport arena, given the ebbs and flows of federal interest and finance. In 2004, for example, voters in

Denver, Colorado approved a 0.4% sales tax increase for a $4.7 billion (now $6.8 billion) plan to expand the regional transport system. The plans for the ‘FasTracks’ programme call for building 119 miles of new commuter rail, light rail, and bus rapid transit lanes and construction of 57 new transit stations. This major regional investment, which leveraged additional private sector funding, is helping to connect residents and commuters from outlying areas of the Denver metropolitan area to downtown Denver, and catalyze significant development and private investment along the new transit corridors.

Similarly, in 2008, voters in Los Angeles approved a half cent sales tax increase to build a major transport system in the county over a 30-year period. The 30-year certainty of tax revenues has given Mayor Antonio Villaraigosa the platform to seek innovative public and private financing to complete construction of the system in 10 years. The project will create 160,000 new jobs in construction, operations and maintenance in a metro area where about 717,000 people are currently unemployed, as well as reduce greenhouse gas emissions and traffic congestion.

Weaknesses

A primary weakness of the US system is that fiscal devolution enhances the vulnerability of cities during economic recessions since federal and state governments rarely take corrective actions to shore up local finances. The weakness has become especially apparent in the wake of the Great Recession and the collapse of the housing sector, which has wreaked havoc on municipal finances throughout the US. With the sharp decline in home prices across almost all of the 100 largest metropolitan areas in the country, property tax revenue in cities has fallen dramatically. The persistent trend of high unemployment has also suppressed income and sales tax revenues and increased costs, further contributing to municipal budget shortfalls.

Rather than coming to the aid of cities, federal and state governments have made cuts to key programmes for cities – including education, transportation, health care, community development, and public housing – in order to address their own major budget issues.

Another major weakness is that the artificial geography of cities does not fit with the metropolitan geography of the US economy. Strictly speaking, a US metro area is a core urban area of more than 50,000 people, the surrounding county, and the adjacent counties that are economically and socially connected, as measured by commuting patterns. As the decades have passed, cities and suburbs have become more integrated, as people and jobs have increasingly moved beyond city borders. It no longer makes sense to think about New York City without thinking about northern New Jersey, or Chicago without looking to Joliet.

The Office of Management and Budget, which sets the metropolitan area definitions, and the Census Bureau no longer even refer to central cities but instead to ‘principal cities’, in an acknowledgment that there is no single ‘centre’ in many metropolitan areas.

The bottom line is that metropolitan areas represent the true economic geography in the

United States. Yet, whereas markets, and more importantly lives, operate in a metropolitan context, government often does not. While almost every US metropolitan area is engaged in some kind of formal or informal collaboration given that critical economic, environmental and social issues clearly cross borders, many city government structures – particularly in the Northeast and Midwest – cling to boundaries more suited to an 18^th century township than to a 21st century metropolis.

So, the power of mayors in a Pittsburgh or St Louis or Baltimore – where annexation is not permitted and city/county merger is difficult – may be illusory in the broader metropolitan context. In the 21st century, the right geography of governance for many issues is not at the level of a city with fixed and immutable borders. Rather, the geography of governance more naturally lies at the level of the conurbation or the metropolis.

Lessons for the United Kingdom

There are several important lessons about the fiscal powers and influence of directly-elected mayors in the United States that are of direct relevance as United Kingdom devolves more power from Whitehall to its major cities. The mayoral referenda, Localism Act and the recent announcement of the ‘City Deals’ from the new Cities Policy Unit are key steps in the devolution process. The menu of policy options that will be offered to cities in potential City Deals, in particular, will help cities develop their own bottom-up plans for growth, and will require more decisive leadership from directly-elected mayors. As devolution unfolds, the US experience offers three lessons for the United Kingdom.

First, fiscal devolution needs to accompany the direct election of mayors. In the US, fiscal power – through property taxes, business taxes, sales taxes, tourism taxes, user fees, financing mechanisms like TIFs and ballot-box referenda – is a necessary foundation of, and impetus for, the entrepreneurial and innovative way in which mayors work.

While the Localism Act grants cities “general powers of competence,” this does not include the power to raise or introduce new local tax schemes. Some City Deals could grant increased financial flexibility and discretion to cities by providing them with a consolidated funding pot, the ability to set business discount rates, and significant power over transport, infrastructure, and workforce skills funding. It does not appear, however, that any City Deal would grant to a city the power of local taxation on a similar level to the power granted to local governments in the US. In addition to direct taxation, UK mayors should also be granted the power to take ballot initiatives (referendum questions) to the voters that raise local taxes to support targeted, transformative investments for the city and greater region, as illustrated by the examples in Denver and Los Angeles.

Devolution of this type of fiscal power to England’s largest cities would allow mayors considerable flexibility to react more quickly to market pressures without having to wait for Whitehall to respond. Currently, for instance, cities with gentrifying neighbourhoods that are displacing lower-income residents need to wait for the central government to recognize the problem and respond with enhanced funding or other tools to stimulate the production or preservation of affordable housing. In the US, mayors are able to address the issue by channelling increased local tax revenues to programmes like affordable housing, but cities in the UK do not have this option. For the most part, tax revenues go directly to Whitehall. This creates a fiscal ‘circuitry’ that is broken.

In fact, the fiscal devolution would likely incentivize greater policy innovation at the local level. Currently, cities that take innovative steps to regenerate and grow their economies are not rewarded by Whitehall, and cities that do not have their act together can still count on a revenue stream that is essentially equalized between places – thus providing little incentive for cities to act in bold and innovative ways under the current system. Although the New Homes Bonus is an important step in the right direction, more needs to be done.

Second, leaders in the UK must grapple with how the election of mayors in core cities enables better governance at the metropolitan and regional scale. The upcoming mayoral referenda occurs at the same time that metro and regional governance is emerging through the creation of local enterprise partnerships (LEPs) between business, political, and civic leaders throughout England (and, in Greater Manchester, the creation of a Combined Authority to oversee key functions of economic development, transport and regeneration).

Since these LEPs help determine and shape the economic development priorities for the multi-county city region, it only makes sense for a directly-elected mayor to utilize their powers – both formal and informal – to assist the LEPs in the creation and execution of the broader regional economic development plan. Mayors should further be involved with their LEPs in the decision-making process for City Deals with the Cities Policy Unit, as an elected mayor in the UK would be in a unique position to reach across the many programmes and constituencies within a region to ‘connect the dots’ between issues that are clearly related but kept separate and distinct by government bureaucracies, in the way that Sam Sims outlines in his chapter in this volume.

Central government leaders should also consider in subsequent mayoral referenda whether to place the geography of mayoral governance at the metropolitan rather than city scale.

Finally, the UK must develop the right governance capacity to make the devolution of powers to the local level successful. With 10 cities deciding whether or not to elect mayors in this year, and more potentially deciding in the coming years, there will likely be an influx of new mayors without the knowledge or experience of how to govern with the new powers devolved to England’s cities and regions. One way to address this issue would be to establish a ‘Devolution Academy’ for newly-elected mayors on an annual or biannual basis.

This academy could be modelled on the bi-annual ‘New Mayors Conference’ that is co-hosted by the Harvard University Institute of Politics and the US Conference of Mayors. It might cover topics ranging from how to transition from the campaign to actually governing in a city, to seminars on leadership, municipal finance, crisis management, and best practices in metropolitan/regional governance. It could also feature lectures from successful big city mayors in the United States and throughout Europe on the challenges of urban governance and ways to build coalitions across disparate groups in a city and metro area. As in the United States, the academy could be operated in conjunction with a major university with special expertise on city matters.

In addition to newly-elected mayors, Members of Parliament and other government officials might attend to discuss ways for cities to collaborate on policies with Whitehall, and perhaps share ideas about ways to devolve more fiscal powers to the local level.

Business and civic leaders from the various cities with new mayors, in addition to the leaders of the Local Enterprise Partnership, should also be invited to the conference to work with the new mayors on ways they can collaborate on regional growth strategies.

These steps would help the newly-elected mayors develop the capacity to effectively deliver change in England’s cities and regions as Whitehall devolves powers to the local and regional level – the primary engines of the British economy.

Conclusion

As devolution proceeds in the United Kingdom, the United States offers some helpful lessons on how to structure city and metropolitan governance, particularly on fiscal matters. For both countries, getting devolution right is a key part of ensuring that growth is productive, sustainable and inclusive.

Authors

Bruce Katz

Publication: Institute for Government

Europe's Crisis Deal Is Causing a Lot of Infighting

Douglas J. Elliott — Fri, 16 Dec 2011 12:26:00 -0500

There has been a lot of sparring coming out of the recent European Summit that was supposed to produce, for the fifth time, a comprehensive solution to the Euro crisis.

These disagreements have disturbed financial markets and made it all the more likely that there will be a market panic in the next few months.

That panic would force leaders to finally back up their words with the money necessary to restore stability, or face quite dire consequences.

I continue to think there is about a three in four chance that the leaders will eventually stare reality in the face and do what is necessary, but that still leaves a worrisome one in four possibility of a disaster that would spread across the globe.

The most important fight in the near-term is the one that is being conducted most subtly.

The European Central Bank needs to be prepared to buy massive quantities of Italian and Spanish bonds if those nations are threatened with loss of access to private funding at acceptable rates.

But the ECB and Germany, Europe's major power, do not want the central bank to step up purchases if there is any serious risk that the financial support would allow politicians in the troubled countries to backslide on necessary reforms.

The hope was that the medium- and long-term reforms agreed to at last week's summit might provide the necessary reassurance to the ECB.

However, it is becoming clear that the central bank viewed the steps as progress, but not nearly enough to justify a major step-up in ECB bond purchases, despite subtle encouragement from many European leaders.

That is a major reason why financial markets have reacted fairly negatively. Unfortunately, this struggle probably will not be resolved without a market crisis leading to a more definitive summit.

The more public struggle is about the role of the UK, which is one of the 27 countries in the European Union, but not one of the 17 that uses the euro as its currency.

There are two levels to that fight.

Read the full article at the CNNMoney website »

Authors

Douglas J. Elliott

Publication: CNNMoney

Image Source: Â© Yves Herman / Reuters

The Financial Policy Committee at the Bank of England

Donald Kohn — Fri, 02 Dec 2011 11:06:00 -0500

As part of the Obama administration’s ongoing work to implement Wall Street Reform legislation, the Office of Financial Research and the Financial Stability Oversight Council hosted a conference, entitled “The Macroprudential Toolkit: Measurement and Analysis,” on December 1-2, 2011 in Washington, DC. Donald Kohn delivered the lunchtime keynote address (posted below as prepared for delivery) on the second day of the conference. Kohn described how the Bank of England's Financial Policy Committee, of which he is an interim member, is using macroprudential policy tools to identify risks and make recommendations to preserve financial stability.

An important and interesting aspect of my post-Federal Reserve life has been my membership as an “external” on the interim Financial Policy Committee at the Bank of England. And I thought this audience might find it interesting to hear a little about the implementation of macroprudential policy in the United Kingdom. We issued our third set of recommendations just yesterday, so this is a good time to discuss our efforts to identify and deal with threats to financial and economic stability.

The Financial Policy Committee

I’ll begin with some background on the establishment of the interim Financial Policy Committee. As in many places, the elected officials in the UK saw room for improvement in the performance of the various authorities responsible for financial stability, both in the build up of vulnerabilities and the response to the subsequent crisis. And they saw the shortfall as partly reflecting structural issues. In particular, the separation of bank supervision from the central bank, which occurred in 1997 when the Bank of England was given a clear price stability mandate and a greater degree of independence, seemed to impede the efficacy of supervision and of crisis response. The Bank retained generalized responsibility for financial stability and it published a much admired Financial Stability Report, but it did not directly participate in formulating and implementing the supervisory policies to establish and protect financial stability, and so did not itself have the levers to carry out its role effectively. The most obvious failing of the UK system, however, was that no single institution had the responsibility, authority, or powers to monitor the system as a whole, identify potentially destabilizing trends and respond to them with concerted action.

Shortly after the new government took office in the spring of 2010 it published a discussion draft of a new structure that moved the regulation and supervision of individual firms back into the Bank of England. Meanwhile the regulation of conduct within the financial system – including the conduct of firms towards their retail customers and the conduct of participants in wholesale financial markets – is to be carried out by a separate, dedicated, specialist body. To focus responsibility and accountability the Government has proposed a new subsidiary of the Bank – the Prudential Regulatory Authority – that will concentrate on microprudential oversight, while a new Financial Policy Committee will provide for the dedicated macroprudential overlay. The law to implement this new structure is still under discussion, but in the meantime the government has established an “Interim” Financial Policy Committee and given it two charges: First, identify risks to financial stability in the UK and make recommendations to deal with those risks; most of the recommendations are to financial institutions and Financial Services Authority, the FSA, which still has the responsibility for oversight of financial institutions. Both the risk identification and the recommendations are included in the Financial Stability Report, which is now the responsibility of the FPC.

Second, we are to make recommendations to the government about what tools we will need in the new law to do our job. Ultimately, we are to have two kinds of powers with respect to tools. First to make recommendations to the authorities where the FPC believes that specific regulatory actions are required in order to protect financial stability. These recommendations are subject to consideration by the relevant authority and then to the usual rulemaking process if the authority decides to go forward. Second, if we see the threat to stability as being immediate and serious, we will be able to issue directives to the microprudential authorities on regulatory tools that should be deployed in the pursuit of macroprudential policy.

The interim FPC has 11 members, including four externals serving on a part-time basis, and it is chaired by the Governor; an observer from the Treasury also attends. The discussions have been vigorous and good—a wide range of views are solicited and expressed about the risks to the financial system and what can be done to ameliorate them. Meetings tend to focus on narrowing the number of issues and identifying the most effective responses. We greatly benefit from the range of backgrounds members bring to the task. Two members come from the FSA and are responsible for microprudential regulation and for implementing many of our recommendations; several are from the financial stability side of the Bank with their macro-financial perspective; several are macroeconomists who have dealt primarily with monetary policy issues and see the relationships between developments in the financial sector and the real economy; and importantly two of my fellow externals have quite extensive experience in the London financial markets, which they have utilized to bring issues to our attention and to inform many of the rest of us without such experience how our concerns are playing out in the “real world”.

I am going to concentrate on the leg of our mandate that asks us to identify risks and make recommendations to preserve financial stability.

Risk Identification

Unfortunately, in one sense this hasn’t been difficult. The UK is part of Europe, even if it’s not part of the euro area, and its banks and businesses are exposed to developments in the ongoing saga of the fiscal, banking and business stresses so evident there. As a consequence, each time we met, we identified exposure to these developments as the primary systemic risk to the U.K. financial system.

We are also building on a risk-identification structure already in place at the Bank of England Staff provide extensive briefings to FPC members in advance of our meetings. This includes information and analysis on the macrofinancial environment and short- and medium-term risks to financial stability – both in the UK and abroad in those markets in which UK banks are active. A key aspect of that analysis is the ability of the UK banks to withstand potential adverse developments. We review many different metrics and model outputs within this process. In addition, the Bank has an active market intelligence function that produces reports on what is going on in markets and the views of market participants about emerging risks. But of particular value is that members bring their own knowledge and understanding of the UK financial and economic system to the meetings. For myself, I make it a practice to talk to people in the financial sector on my visits to London so I can learn first-hand what stability issues are on their minds.

Recommendations

With very few exceptions, our recommendations have fallen into one of two broad categories. One category encompasses acquiring additional information for ourselves and for the public that we believe is necessary for the FPC and the markets to monitor and take actions to contain risks to financial stability. The second category has been a series of recommendations to build additional resilience into the banking system without impairing its willingness and ability to perform key intermediary functions, and in particular to supply credit to UK households and small and medium-sized enterprises.

On the information side, we have identified several practices that raised questions about stability, but for which we didn’t know enough to make a judgment and we asked the FSA to gather additional information. One such practice involved complex funding structures, including those associated with synthetic ETFs and collateral swaps. We were concerned about a potential build up in interconnections that were difficult to understand, opaque to investors and counterparties, and therefore could contribute to mispriced risk and instability in a stress situation. The FSA found that British banks were not active in this area, but it will be important to monitor this sort of complex interconnection going forward to assure that the kinds of complex, opaque funding structures that contributed to the buildup of risks and proved so fragile in the crisis do not re-emerge.

We also have asked the FSA to look into loan forbearance and associated provisioning. By allowing both borrowers and lenders additional flexibility to work through debt obligations during temporary periods of stress, forbearance can be a stabilizing force for the economy and financial markets. But loans that have been subject to forbearance are also inevitably subject to greater risk than loans that did not need special treatment. If those risks are not adequately provisioned for, banks are in effect not as resilient as they might appear from their published capital ratios and balance sheets. The FSA had already looked into forbearance in residential real estate, but we asked that this work be extended to UK banks’ household and corporate sector exposures on a global basis. Initial results for the UK commercial real estate sector indicated some under provisioning, but not enough to constitute a systemic risk. Under a risk-based approach, more work will be done on global exposures.

We also asked that the banks publish additional information so that private parties can better judge the safety and soundness of UK bank counterparties, increasing the role of market discipline in maintaining financial stability. As a generalization, UK banks are not as transparent as those in the U.S.—for example complete reports are published semi-annually, not quarterly, and the published reports are just for one day, with very little if any information about intra period balance sheets. So one recommendation to the FSA has been to work with the British Bankers Association to increase the transparency of UK banks along a number of dimensions; this is an ongoing project we shall be returning to periodically.

Last June we were especially focused on European sovereign exposures and the just completed EBA stress tests. Uncertainty among those extending credit to banks about such exposures could undermine financial stability by inducing a generalized reluctance to fund UK banks in response to the threatening situation in the euro area. We asked the FSA to ensure that the exposures of individual major UK banks were released to the public and we asked the FSA to look at, and publish aggregate information on, exposures of the banks below the few largest. The publication of the requested information did occur and for the banks below the top few, it showed that euro area exposures were quite limited.

Just yesterday we recommended that the publication of leverage ratios be accelerated from 2015 as required under the Basel 3 guidelines to no later than the beginning of 2013. Widely varying applications of risk weights distort comparisons across banks and have the potential to reduce public confidence in the information content of capital ratios that use risk-weighted assets in the denominator. Leverage ratios, which weigh all assets equally, are imperfect metrics for resilience, but they can be valuable supplements to supposedly more sophisticated measurements; the sharp rise in such ratios before the crisis at a number of institutions were a warning sign of vulnerability. We expect that the additional public information about over all leverage will help counterparties evaluate risk, bolster market discipline, and provide greater incentive for UK banks to raise capital and constrain leverage.

The second category of recommendations has focused on building bank resilience, especially in light of the growing risks from the euro area. It is critically important that banks not try to bolster their own individual strength by reducing the availability of credit to UK businesses or households, even in periods of stress. Although a definitive parsing of weakness in credit growth between supply and demand is never really possible, credit availability is seen as somewhat constrained in the UK, especially for small and medium-size businesses, and further restraint would tend to weaken an already slow recovery, feeding back on the banking system. The best way to build resilience while maintaining lending is to increase the level of capital—and that has been a main objective of the FPC. In June and September we advised the banks to take advantage of any opportunities to increase capital in periods of strong profitability by retaining those earnings and not distributing them in dividends or additional compensation, and to reduce distributions when earnings fell short. We asked the FSA to work with banks on the follow through to this recommendation.

When we met a week ago, we recognized that the threat from the problems in the euro area had intensified and as a consequence so had the need for an ample capital cushion. At the same time, a variety of forces had weakened the growth of bank earnings, which consequently had been inadequate to build any extra cushion. One of the effects of the increased threat relative to the level of capital had been a rise in funding costs for UK banks and reduction in availability, especially at longer tenors. Those funding constraints could well begin to feed through to the cost and availability of credit to households and businesses. Consequently we strengthened our recommendation to the banks to say that “if earnings are insufficient to build capital levels further, banks should limit distributions and give serious consideration to raising external capital in coming months.” The FSA will carry this message to the banks in coming weeks as it reviews banks plans for compensation and dividends, and as it assesses the adequacy of their capital plans.

In addition to building capital levels, banks can take steps to manage their balance sheets to increase resilience without reducing critical lending and other activities. In September and again yesterday, the FPC advised the FSA to work with banks to identify such opportunities to strengthen balance sheet resiliency without exacerbating market fragility or reducing lending to the real economy.

On the liability side of the balance sheet this entails obtaining term funding whenever possible and reducing reliance on short-term wholesale funding sources that are subject to being cut off suddenly were counterparties to become concerned about the creditworthiness of the borrower or indeed about their own vulnerability so they begin to hoard liquidity in even safer forms. As we saw in 2008, even secured short-term funding is vulnerable when confidence is undermined.

Among assets, intra financial sector claims could be a channel for contagion when counterparties get in trouble and reductions in some of these claims might also free up capital for lending to nonfinancial counterparties to support the economy. At the same time, we need to recognize that borrowing and lending among financial institutions can perform valuable economic functions in supporting real economy lending by smoothing the availability of funds to lenders and redistributing savings from lenders with a surplus to those facing stronger loan demands and who can use the funds more productively. The FPC has identified for further examination the role of different kinds of intra financial sector transactions in financial and economic stability. Among other things, the financial stability perspective – the externalities of individual transactions - may imply different risk weights for capital requirements than those derived from microprudential considerations.

Countercyclical Macroprudential policy.

Much has been written and analyzed about the challenges of conducting macroprudential policy in good times—taking away the prudential punch bowl as the party gets going. The earnings and capital of institutions will look strong; borrowers will be in good financial shape even after they have increased their use of credit; asset mispricing will be difficult to identify and will entail overriding market judgments; vested interests in the private sector and at the intersection of the private and public sectors will be resistant to change; and it will be difficult to convince even dedicated and dispassionate elected representatives that the good times can’t go on forever—or at least until after the next election. It won’t be easy, but in my view the widespread awareness of these problems along with the memory of the very tough times we are now experiencing because of past credit excesses will make it reasonably likely that the authorities will do the right thing under these circumstances.

The other side of countercyclical policy—easing when times become tough—confronts a different and perhaps more difficult set of challenges. When the economy is weakening and bad debts are building, easing requirements may reduce the effect of financial sector problems on the real economy. But how do you know the problems won’t get much worse, perhaps for reasons entirely external to the economy in question and out of control of the authorities. If conditions do continue to deteriorate substantially, releasing capital and liquidity buffers—lowering requirements—could come back to haunt the economy and the authorities if it results in widespread failures, unemployment as credit tightens, and if it comes to require fiscal action to stem the downward slide. The FPC has faced just such an issue as the situation in the euro area worsened last summer and fall, and its discussion of the conflicting pressures is reflected in the record of our September meeting, already published. The committee concluded that lowering buffers would not be appropriate at that time, out of concern about what might be coming next.

The cost of leaning unnecessarily hard against expanding credit and rising asset prices would be growth and innovation foregone—very hard to see. The cost of inadequate capital and liquidity is large and visible—a loss of confidence and an unstable financial system. A risk averse, or even a risk neutral, macroprudential regulator will find it more comfortable to take away the punch bowl in good times than to spike in bad times. We need more thought and research about appropriate countercyclical policies in tough times.

Conclusions

Although forms of macroprudential policies have been practiced for many years in a number of countries, the consistent and systematic application of this perspective to highly sophisticated globally integrated markets and institutions as is now being undertaken in the UK, U.S., and other advanced economies is in its infancy. I’ve drawn a couple of conclusions from my experiences in this new endeavor.

It’s no accident that many of the FPC’s recommendations have centered on information. The authorities can’t conduct macroprudential policy and the markets can’t reinforce the efforts of the authorities without detailed knowledge of key elements of the financial markets and their interrelationships. The work of the Office of Financial Research and of the researchers at this conference is essential to establishing and preserving financial stability. It is necessary, but it is not sufficient. That information and analysis must fed into an open and inclusive process that brings a wide variety of experience and judgment to bear. We are all learning from each other.
Building additional resilience into the system in difficult times without impeding the flow of credit to households and businesses is hard. It will be at just those times that resilience is most needed, but also when earnings are likely to be low and capital markets expensive to access. Surely the solution is to require high levels of capital and liquidity before trouble hits, so bad times are much less likely to call the viability of financial institutions into question. Unfortunately, the current threats to financial stability are occurring while the transition to this stronger regime is underway, but not yet complete.
Countercyclical macroprudential is challenging. This is true in good times when it appears the system is strong and there will resistance to damping the upswing. But it may be even more difficult to allow or even encourage drawing down of capital and liquidity buffers in bad times to reduce the potential for tightening credit conditions to feed weakening economic trends. This problem illustrates nicely the different perspectives of macro- and micro-prudential regulation. From a micro perspective, conserving capital and liquidity by reducing lending and being tough on restructuring troubled credits under such circumstances strengthens the bank and helps to keep it from failing. From a macro perspective, however, those actions will tend to activate an adverse feedback loop between the financial sector and the real economy that will weaken both. Congruence between micro and macro considerations requires that financial institutions have high levels of capital and liquidity before trouble hits. ‘

Authors

Donald Kohn

Publication: U.S. Department of the Treasury

Perspectives on Health Care Reform in the U.K.

Wed, 09 Nov 2011 14:00:00 -0500

Event Information

November 9, 2011
2:00 PM - 3:00 PM EST

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

The rapid growth of health care costs is a growing global concern. As the United States embarks on the implementation of the Affordable Care Act, one of the largest transformations of its health care system, the United Kingdom has also embarked on reform of its National Health Service to achieve low-cost, high-quality care. In both the U.S. and the U.K., growing economic pressures and an aging population are making the challenges associated with "bending the health care cost" curve especially acute.

On November 9, the Engelberg Center for Health Care Reform at Brookings hosted a discussion with U.K. Secretary of State for Health Andrew Lansley, who presented his vision for modernizing the U.K. health care system to improve quality and productivity. Following Minister Lansley’s remarks, Mark McClellan, director of the Engelberg Center and Leonard D. Schaeffer chair in Health Policy Studies at Brookings, lead a conversation with the minister around aligning incentives for a sustainable high-value health care system.

After the program, Minister Lansley took audience questions.

Audio

Perspectives on Health Care Reform in the U.K.

Transcript

Event Materials

Participants

Panelists

Andrew Lansley

U.K. Secretary of State for Health

European Union Defense Cooperation

Clara M. O'Donnell — Mon, 24 Oct 2011 00:00:00 -0400

The United Kingdom and France have spent the last 60 years encouraging their European neighbors to become more active players in defense. During the Cold War, there was a perception in London and Paris— as well as Washington—that NATO allies were not contributing sufficiently to transatlantic security. This belief became more prominent with the collapse of the Soviet Union, as most European governments cut their defense spending and many chose not to equip their armed forces for potential post-Cold War conflicts.

In the late 1990s, Britain and France turned to the European Union in the hope that it could help strengthen European military commitments. Although France had long been a supporter of independent European defense efforts, until 1998 the United Kingdom had been keen to maintain all efforts to improve European armed forces within NATO—mostly out of concern that autonomous European military cooperation might undermine the U.S. commitment to Europe. But the Balkan wars made the UK realize that—in the post-Cold War world—the United States might not always be prepared to stabilize Europe's neighborhood. In addition, American policymakers were telling their British partners in private that unless Europeans became more active in defense, NATO was not going to last. So, in the hope that the EU might help galvanize the political will for reform, the UK agreed to launch the EU’s Common Security and Defense Policy (CSDP).

Over the following years, although Britain and France did not agree on all aspects of EU defense cooperation, they supported a variety of initiatives designed to develop a global strategic culture amongst their European allies, improve their military capabilities and increase the number of European troops deployed abroad. In 1999, London and Paris worked closely with their partners to set up what was known as the ‘Helsinki Headline Goal’, which aimed to give the EU the ability to deploy up to 60,000 troops and sustain them for a year by 2003. In 2004, Britain and France played a central role in creating the European Defense Agency (EDA), which was designed to increase the level of cooperation between armed forces and national defense industries in Europe. Both countries supported the drafting of the 2003 European Security Strategy and its 2008 update, which set out global security ambitions for the EU. And the UK convinced its neighbors to set up rapidly deployable combat units of 1,500 troops known as EU "battlegroups."

In the run up to the Lisbon treaty, London and Paris also supported the concept of permanent structured cooperation (PESCO). This innovation, which has been introduced by the treaty but remains to be implemented, is designed to allow a core group of EU members to deepen their military cooperation. To qualify for membership of the core group, countries would have to meet certain criteria which demonstrated their commitment to defense. Prior to the new treaty, Britain and France had hoped that—as had been the case with the Eurozone—the pull of a core group would drive EU member-states to meet the various criteria, thereby strengthening European military capabilities.

Read the full article »

Authors

Clara M. O'Donnell

Publication: Centre for European Reform

Defusing the Bomb: Reversing the Process of Radicalization and Preventing Political Violence

Wed, 27 Apr 2011 13:00:00 -0400

Event Information

April 27, 2011
1:00 PM - 2:30 PM EDT

Somers Room
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

On April 27, 2011, the Saban Center for Middle East Policy hosted a discussion with Mark Fallon and Mike Gelles of the Soufan Group. Moderated by Saban Center Director of Research Daniel Byman, the policy forum explored radicalization and political violence, and measures for combating this global challenge. Extremism and terrorism emanating from the Middle East and South Asia continue to pose threats to many countries around the world, and increasingly to the United States. Yet, despite this, Washington has lacked an adequate counter-radicalization strategy. Adding to the problem is the fact that there is no clear consensus among American experts on how to prevent or combat extremism.

To address the challenge of fighting radicalization, the speakers presented the results of a report titled Risk Reduction for Countering Violent Extremism, which explores de-radicalization and counterterrorism practices in five countries—France, Great Britain, Indonesia, Northern Ireland, and Singapore—and offers recommendations for risk reduction and prevention.

Read the executive summary of the report »

For the full report, please contact the Qatar International Academy for Security Studies at info@qiass.org.

Participants

Moderator

Panelists

Mark Fallon

Senior Vice-President for Learning & Knowledge Development, The Soufan Group

Mike Gelles

Consultant, The Soufan Group

Tough Times: The New British Security Strategy and the Lessons for U.S. Policymakers

Jonathan Laurence and Peter W. Singer — Wed, 29 Dec 2010 00:00:00 -0500

"The days of British military power appear to be ending," Max Boot lamented in the Wall Street Journal. Another columnist at The Economist weighed in that Great Britain is at best managing its "relative decline."

That was likely not the reception that U.K. Prime Minister David Cameron’s coalition government was hoping their new National Security Strategy would receive from such traditionally conservative outlets when it was released Oct. 18. Coupled with the Security and Comprehensive Spending Review released days later, the critics worried that these documents were merely written justifications of the end of Britain’s military footprint in the world.

Yet it is odd that a conservative government was lashed by fellow travelers for the very reason of making strategic decisions based on realism. That is, the security strategy, titled "A Strong Britain in an Age of Uncertainty," can be read as a realistic blueprint for tough times, reflecting the priorities of a new government — chastened by what it says is the overreaching of its predecessors, but which nonetheless continues to endorse a global role for the U.K.

Even more, the documents may have some lessons for leaders on the other side of the Trans-Atlantic "special relationship." As Cameron noted, “We have inherited a defense and security structure that is woefully unsuitable for the world we live in today. We are determined to learn from those mistakes, and make the changes needed.” Cameron’s statement was more than just putting a brave face on grim news. It was an illustration of what a government sometimes has to do when facing tough circumstances. And, given current circumstances and trends for the United States, the British document may well provide some inkling for how an American president and defense secretary, Democratic or Republican, will likely respond in 2013 and beyond as the United States wrestles with its own "age of austerity."

Read the full article at armedforcesjournal.com »

Authors

Publication: Armed Forces Journal

The U.K. Terror Plot: The Latest Sign of Al Qaeda's Global Jihad

Bruce Riedel — Mon, 20 Dec 2010 00:00:00 -0500

The arrest of a dozen men in four cities in England and Wales Monday for allegedly planning al Qaeda-inspired terror attacks is fueling anew the deep concern among European and U.S. intelligence services that al Qaeda is determined to strike this winter. Sweden has already been spared a horrific terror attack by the mistakes of a suicide bomber whose bomb went off prematurely. So far luck has been with us. But counterterrorism experts know they can’t count on luck.

The arrests in the U.K. are the latest in a long series of conspiracies uncovered by the British internal security service MI5, which has recognized al Qaeda and its allies like Lashkar-e-Taiba and their sympathizers as the greatest threat to British security. The British services have foiled many plots, most notably the 2006 plan to simultaneously blow up in mid-air eight or so jumbo jets flying from the U.K. to Canada and the U.S. But they failed in 2005 to prevent the attack on London’s Underground.

Most of these plots have focused on the large Pakistani diaspora community in Great Britain, some 800,000 strong, which has long been a target for al Qaeda and Lashkar-e-Taiba planners. Some of those arrested in the current crackdown are from the U.K.’s Bangladeshi community—almost 300,000 strong—which is probably just as high a priority for MI5 surveillance now. Young men from these South Asian communities with British passports routinely travel home for business or family reasons. Most are entirely innocent; a few are secretly being trained for terror and then sent to attack.

The U.K. was also home to the Stockholm bomber, Talmour Abdulwahhab Al-Abdaly, for much of his life. His attempt on December 11 to blow himself up with a suicide bomb vest and a backpack full of nails in a Swedish mall has been lauded by al Qaeda as the “battle of Stockholm” on the terrorists’ websites. An Iraqi by birth, he claimed to have been trained in the Middle East, perhaps Jordan, by al Qaeda’s Iraqi franchise, the Islamic State of Iraq. He said he wanted to kill Swedes to punish them for having troops with NATO in Afghanistan and for a Swedish cartoonists' satire of the Prophet Muhammad.

The Iraqi connection is disturbing. The U.S. has devoted years of intense effort to try to defeat al Qaeda in Iraq and has achieved considerable success. Nonetheless, the group has proven remarkably resilient and agile. Until Stockholm, the al Qaeda wing confined its murder to the Middle East, striking primarily in Iraq but also in Jordan and Turkey. If it is now training killers for attacks outside the Middle East, that is a new and worrisome danger, adding to the threat already posed from the al Qaeda core in Pakistan and the increasingly ambitious franchise in Yemen, al Qaeda in the Arabian Peninsula.

We face a truly global terror network, the first in history, which is based loosely around a CEO, Osama bin Laden, who has evaded the largest manhunt in history for a decade and who is inspiring a small but deadly minority within the Islamic world to wage jihad against us relentlessly. Bin Laden is trying to stretch the battlefield as widely as possible both in terms of targets threatened and in terms of staging places for training and recruiting jihadis. His goal is to bleed the West with a thousand wounds, painful wars and expensive counterterrorism measures and perhaps to spark a war of civilizations by fueling Islamophobia.

Authors

Bruce Riedel

Publication: The Daily Beast

Security in an Uncertain World: Great Britain's New National Security Strategy

Thu, 28 Oct 2010 14:30:00 -0400

Event Information

October 28, 2010
2:30 PM - 3:30 PM EDT

Saul/Zilkha Rooms
The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036

Great Britain faces a complex array of national security threats from a myriad of sources. Recently, Prime Minister David Cameron's coalition government set out its assessment of the threats Britain faces and how it intends to meet them. The newly-released national security strategy highlights clear priorities for counter-terrorism, cyber security, international military crises and natural disasters such as floods and pandemics.

On October 28, the Center on the United States and Europe (CUSE) and the 21st Century Defense Initiative at Brookings hosted Baroness Pauline Neville-Jones, the United Kingdom’s security minister, for a discussion of the British government's new national security strategy. In her remarks, she reviewed the UK’s ability to meet and address critical threats, the strategic context within which these threats arise, and how they may evolve in future.

Senior Fellow Peter Singer, director of the 21st Century Defense Initiative, introduced Baroness Neville-Jones and moderated the discussion. CUSE Nonresident Senior Fellow Jonathan Laurence also provided remarks. After the program, the panelists took audience questions.

Audio

Security in an Uncertain World: Great Britain's New National Security Strategy

Transcript

Event Materials

Participants

Moderator

Panelists

Baroness Pauline Neville-Jones

Minister of State for Security and Counter-terrorism, Government of the United Kingdom

Slashing Spending and Boosting Infrastructure in the U.K.

Robert Puentes — Tue, 26 Oct 2010 15:31:00 -0400

British Prime Minister David Cameron’s announcement last week of the U.K.’s plan to balance its books by slashing spending raised eyebrows across the globe. With an average drop of nearly 20 percent across all British agencies--from defense, to housing, to education--one commenter noted, “Little is spared.”

But not everything was cut. Recognizing the “difficult decisions” that Britain has deferred in recent years, the prime minister followed up last week’s budget announcement with a major speech yesterday to the Confederation of British Industry (Britain’s rough equivalent of the U.S. Chamber of Commerce) where he rolled out his National Infrastructure Plan 2010.

Like many of these infrastructure proposals we’re used to seeing in the United States, this one is dizzying in its ambition. The plan sets out a spending target of about $315 billion over the next five years on energy, transportation, broadband, and water infrastructure. Where all that will come from is still kind of TBD. The prime minister did say that the government will increase spending on transportation infrastructure to over $47 billion over four years. The other infrastructure investments are slated to come from partnerships with the private sector, especially on energy and broadband.

Just as important is the framework for how Cameron described and situates the need for an infrastructure plan. He cites the critical need to boost Britain’s exports, the imperative of low carbon, and the emphasis on social responsibility. To do that, the government has identified a new hierarchy for investments: “prioritizing the maintenance and smarter use of assets, followed by targeted action to tackle network stress points and network development and, finally, delivering transformational, large scale projects that are part of a clear, long term strategy.”

There is a call for the establishment of a type of national infrastructure bank to make merit-based, depoliticized decisions to stimulate investments in the green economy. The bank will take on risks the private sector is not yet willing to absorb and will be capitalized initially through the sale of unnamed government-owned assets. It will also augment new institutions such as a division within the Treasury Department—Infrastructure UK—to help support these public/private partnerships.

The plan even includes an emphasis on improving data and information. For those of us engaged in the infrastructure conversations in America, there’s a lot to like in here.

Nevertheless, one should be careful to avoid the desire to just scratch out “U.K.” and insert “U.S.” here since the systems of government in the two nations differ substantially. A Brookings report from earlier this year noted that the U.K. is one of the most highly centralized countries in the industrialized world and--especially when it comes to transportation and infrastructure--the U.S. system is far more disaggregated. This pertains both to how Washington operates and the relationship between the executive and legislative branches, as well as the federalist system and the relationship between the federal government and the states, not to mention local governments and over 300 metropolitan areas. This means our federal government has a difficult time developing broad-based policies that truly meet national interests, as opposed to those of individual states.

Still, the juxtaposition between Britain’s call for dramatic slashes in spending followed by the roll out of a major strategy to update and modernize infrastructure specifically so the nation can compete longterm, demands our attention. This is not merely a plan for improving infrastructure. It is a plan for improving the U.K. economy through the lens of infrastructure improvements. That’s an important distinction the US has been slow to embrace, but one we cannot afford to ignore.

Authors

Robert Puentes

Publication: The Avenue, The New Republic