Peace and Strength

We have been reminded that Ronald Reagan advocated “peace through strength”, which included the twin policies of deterrence and the Strategic Defense Initiative.

Deterrence relied on ‘mutually-assured destruction’: it sent the message ‘if you strike us, we will strike you back’.  This policy was successful against Russia because Russian cities would have been obliterated in the event of nuclear war and the Russians didn’t want to take that risk.  The international situation has now changed, though, with the advent of Al Qaeda.

Deterrence would never work against Al Qaeda for two reasons.  Firstly, the organisation is so dispersed that it does not present a target which could be struck with nuclear weapons – so it is an empty threat to say that one would strike back.  Secondly, we now know that some of these terrorists want to die because they believe that they will go to heaven.

The SDI is similarly less effective against some of America’s current enemies.  Al Qaeda uses suicide bombers and doesn’t yet use inter-continental ballistic missiles.

President Obama has realised that for America to respond to today’s situation it is appropriate to use soft power in addition to maintaining some elements of the Cold War policy.  Islam is a peaceful religion but Muslims are encouraged to go to war if they are attacked or perceive themselves to be under threat; it is therefore necessary for America to be seen to be working for international peace rather than to be seen as an aggressor.  America is able to act with international approval when it uses its strength to defend itself, to defend its allies, or (with UN approval) to protect vulnerable groups.  Perhaps it is time to update the wording of the motto to “peace and strength”.

Immigration Control

Immigration policy has become a political football on both sides of the Atlantic.  There are substantial popular concerns and politicians, who want to attract voters, respond by taking a populist stance.  The topic has become a matter of point-scoring instead of a review of what would be in the best interests of the population.

Britain and America experience different immigration pressures but they face the same list of problems, including border control, assimilation, benefits policy and the granting of citizenship.

Conservatives in both countries have attempted to restrict immigration in ways that are economically damaging and appear hostile.  For example, Jeff Jacoby’s article in The Boston Globe on 9 May 2010 criticised the 2010 Arizona immigration law as being “foolish, perverse, and repugnant to American interests and ideals”.  The British Conservative party saddled itself with an arbitrary target of reducing net immigration to 100,000 people a year (less than half the current figure); on 12 October 2012 The Economist described this as “The Tories’ barmiest policy” and noted that it is “creating red tape, stifling entrepreneurs and hobbling Britain”.

Republicans are now openly discussing the need for their party to espouse immigration reform as a policy, following their defeat in last November’s presidential election.  The New York Times published an analysis on 9 November 2012 which opened with this observation:

“After a presidential election in which Latino voters rewarded President Obama while punishing Republicans for their positions on immigration, Republican leaders and prominent conservatives moved quickly this week to shift to new ground, saying they could support some kind of legislation to fix illegal immigration.”

The five-member Growth and Opportunity Project of the Republican National Committee has now produced a report calling for “comprehensive immigration reform”.  The American Enterprise Institute reviewed this report in an article on 19 March 2013, entitled Republicans need to show support for Hispanic dreams.

Immigration reform is also now being actively discussed in Britain – but politicians are still trying to clamp down more tightly rather than addressing the issue as a whole.  The Liberal Democrat leader, Nick Clegg, made a speech on Friday 22 March which promised to reintroduce exit checks, without which no real control is possible, but the speech attracted headlines for other reasons.  The headline on a Guardian article was “Nick Clegg abandons illegal immigrant amnesty proposal” – a policy he is abandoning not because he thought it was wrong but because people think that it might encourage more illegal immigration. The headline on a BBC article was “Clegg backs ‘security bonds’ as he sets out immigration stance” – referring to the suggestion that some visitors might be asked to deposit a ‘security bond’ when they arrive in the country, redeemable when they leave; this has been criticised as unworkable.

David Cameron’s speech on 25 March talked about “what we are doing to get a grip on immigration into our country”.  He outlined a miscellany of proposals to close loopholes in the current system of immigration control and set a tone of aiming for competent administration whilst avoiding xenophobia.  This seems reasonable enough, if somewhat belated, though he said nothing about strengthening the UK Border Agency – which is reported to have a backlog in processing which would “take 24 years to clear” at the current rate of progress and which has lost track of tens of thousands of people who have applied for entry to Britain.

The politicians are focusing on trying to reduce the numbers of immigrants and reducing their welfare benefits and are paying insufficient attention to the problems of assimilation.  An article in Prospect magazine on 22 March, entitled What Clegg should have said about immigration, pointed out that “the question of integration—what happens when migrants actually arrive—was passed over and it has been neglected by policymakers, both under past governments and the present coalition”.  This need was also noted in the book Patterns of Power ( immigrants who have arrived need somewhere to live and there will be an increased load on education and health services.  And it is important, both for the immigrants themselves and for the people around them, that they learn English quickly.

Welfare benefits are part of the larger issue of the rights and responsibilities of citizens, of long-term residents from other countries (sometimes referred to as ‘denizens’), and of short-term visitors.  These are a matter for political negotiation, as described in the book Patterns of Power (6.7.3).


Banking Reform

Society needs banks, but is not currently well served by them.  They are abusing their economic power:

The finance sector continues to increase the wealth of its employees and shareholders whilst putting the rest of society at risk; the financial crisis of 2007-8 could easily be repeated.

Big banks are regarded as being ‘above the law’.

Recent writings on these subjects have highlighted the gravity of these problems and have suggested some solutions.  The time to implement those solutions has surely arrived, if politicians can agree.  A healthy retail banking system is essential for a modern market economy (3.2.7).  Governments cannot afford to let it collapse because of the resulting damage to individuals and corporations in the ‘real economy’; that was why Presidents Bush and Obama authorised the Troubled Asset Relief Program (TARP).

A recent book, The Bankers’ New Clothes by Anat Admati and Martin Hellwig, was reviewed in Bloomberg Businessweek on 22 February and was the subject of the article Running on Empty in the Wall Street Journal on 1 March.  The book highlighted the fact that banks are able to take very high levels of risk in relation to the value of their share capital (equity) because both the management and the shareholders know that the government would always bail them out; it suggests a remedy – obliging the banks to run with a higher proportion of equity funding compared to their levels of borrowing, perhaps returning to typical post-war levels of 20% equity.  This would mean that retail banks would not fail unless more than 20% of their loans went bad, as compared with the pre-crisis (and current) situation where, as the Wall Street Journal puts it, “if only 4% of the bank’s loans fail, the shareholders are wiped out, and the bank cannot pay its debts”.  Both reviews support the conclusion that the book’s proposed solution would not unduly damage the banking sector and would protect the rest of society from a lot of risk.  And if shareholders knew that the government would be less likely to bail them out they would exercise greater governance over banks; this is a more market-orientated approach than increased government regulation of the banks.

As reported by the BBC on 11 March – the day when the Banking Reform Bill is being debated in Parliament – a British Parliamentary Commission has recommended greater “loss absorbency”, by increasing shareholder capital.  It is also asking for a “firewall” to separate investment banking from retail banking.  Investment banking is more risky than retail lending because financial instruments like derivatives allows bets where the investor stands to lose much more than the value of the original investment.  The Basel III rules only require a ‘leverage ratio’ of 3% by 2018 (and it is reported that some banks are struggling to meet that target).  Several authorities believe that this figure is inadequate; it means that investment banks would be allowed to expose themselves to a risk of 33 times the value of their assets – so the proposal to separate them from retail banking would significantly help the latter is to be more robust.

The continued fragility of the banking system is leading to calls on both sides of the Atlantic for society to take greater legal powers to prevent a recurrence of the 2007-8 financial crisis.  Such calls, though, sound hollow in the face of last week’s astonishing statement by the U.S. Attorney General that “Banks are too big to jail”.  He made this statement before a Senate Judiciary Committee when explaining why he is not prosecuting HSBC for money laundering, saying that “if we do prosecute ….  it will have a negative impact on the national economy, perhaps even the world economy”.

The above Bloomberg article mentioned that “Two national movements—the Tea Party and Occupy Wall Street—flourished in part out of frustration with Wall Street’s privileges, and its failures”.  These two movements are on opposite sides of the political spectrum, so it might be thought that a bipartisan approach would be possible in Congress.  There would also be huge popular support for meaningful banking reform.  It would therefore seem that politicians should be able to push through a solution, but some are arguing for a continuation of the status quo.  Some senior politicians had previous careers in the finance sector, and might therefore be sympathetic towards its desire to receive continued taxpayer underwriting of its risk-taking and corresponding bonuses.  Another factor is the role of money in politics (6.4.5), where lobbying and campaign contributions can exercise undue influence over politicians who should be prioritising the interests of the population as a whole.  Voters should watch carefully.

Invading Iraq – a misuse of power

In an article on 6 March 2013, entitled 10 years later, Arianna Huffington drew attention to the way in which political power was used in deciding to invade Iraq in 2003.  She noted the way in which the American people and Congress were intentionally misled so that they would support the war, and the fact that those responsible have not been held to account.

The Iraq war did not benefit the American people.  This was foreseeable, but warnings were ignored.  Why did Congress not prevent the Administration from making such a costly mistake?  The checks and balances in the American Constitution failed.  The inappropriate haste of the decision was prompted by political considerations, not by operational need.  And there was no operational need to invade Iraq, rather the contrary.

The President and the British Prime Minister were able to override the advice they received, and the public demonstrations against the war, to pursue their convictions.  These convictions may have been honestly held, but that is no excuse for the political system as a whole; voters should ask themselves how it failed to protect them from incompetence – and ask why no-one has been held to account.  The governance failings are examined in more detail in chapter 8 of the book Patterns of Power, where they are summarised in section 8.7.6.

European Convention on Human Rights

An article in The Mail on Sunday, on 3 March 2013, celebrated the British Home Secretary’s proposal for Britain “to pull out of the discredited European Convention on Human Rights that has allowed dangerous criminals and hate preachers to remain in the UK “.  The newspaper suggested that Theresa May’s proposed move “would mean foreign courts could no longer meddle in British justice”.  This is arguably not in the best interests of the British people.

The article brings into question the whole scope of Europe’s role in the subsidiarity of legal power (5.3.5).  It mentions “such hugely controversial decisions as banning the deportation of radical cleric Abu Qatada and giving British prisoners the right to vote”.  This raises three separate questions: how to reduce the impact of “hate preachers”, whether “foreign criminals” should have any civil rights, and to what extent any person forfeits their rights by committing a crime.  The newspaper ignores the reasons for establishing the European Convention on Human Rights.

As reported by the BBC, Abu Qatada “faces a retrial in Jordan for allegedly conspiring to cause explosions on Western and Israeli targets in 1998 and 1999” but has “never been prosecuted in the UK” because the “director of public prosecutions ….had never been shown any evidence to support a criminal prosecution”.  If British law has a problem in protecting the population from damage inflicted by “hate preachers” that is a purely domestic matter which needs to be addressed as part of preventing ethnic conflict (5.4.6); the fact that Abu Qatada is not a British citizen should be irrelevant in this context.  It would have been convenient for British politicians to dodge the issue, by deporting a single “hate preacher”, but that would not have resolved the problem of British citizens who preach hate.

There is a question relating to the civil rights of denizens – people who live in a country but who do not have citizenship.  They are human beings, so they should have the same basic human rights as anybody else, as defined in the European Convention on Human Rights; that is the prime concern of the European Court of Human Rights.  The extent of economic or political rights for denizens is a different question (6.7.3).

The question of whether prisoners should be allowed to vote is related to the objectives of the penal system (5.2.7).  If rehabilitation is intended, prisoners will return to society at the end of their sentences.  It is surely counter-productive to make them feel that they can never play a constructive part in society; voting is one of the most basic mechanisms by which an individual participates in politics (6.6.1).

Theresa May’s proposal should be judged on whether it would it be better for the population if Britain were to completely withdraw from the European Convention on Human Rights.  British people have become complacent about their rights, yet this is unwise (5.4.7).  European intervention prevented the loss of the ancient rights which prevent arrest without charge and indefinite detention without trial.  The convention was designed for this very purpose – to prevent national politicians from seizing powers which can be abused.

If her proposal were designed solely to gain support for the Conservative party in a struggle against UKIP, without due consideration of what is best for the British people, she should reflect on the possibility that many voters would give such a party neither their respect nor their votes.

A European financial-transactions tax

A leading article on Europe’s proposed financial-transactions tax, in this week’s Economist, is eloquent on the problems it would encounter.  For example, many financial transactions would simply move elsewhere.

The article is strangely silent, though, on why such a tax might have benefits; some leading economists have pointed out that reducing the quantity and speed of financial transactions could reduce the tendency for ‘momentum trading’ to create financial bubbles (3.3.4) and might also encourage shareholders to play a greater part in company governance (3.5.6).

The Economist article implies, correctly, that restructuring global financial governance (3.5.5) would require almost unprecedented international cooperation – but that is not a reason for abandoning the attempt.

Drone strikes

As reported by HuffPost, drone strike limitations are being considered by Congress.  The article doesn’t mention one very good reason for limiting the use of drones: their propaganda impact.  As reported in the book Patterns of Power (7.4.3), drones cause a lot of civilian deaths.  Al Qaeda is able to recruit more terrorists by reporting that Americans are killing Muslim children.

British referendum on EU membership

Gun Control