Inglorious Isolation

Greg Burke

“When will Labour learn that you cannot build Jerusalem in Brussels?”

The words of Margaret Thatcher echo louder than ever as that other ancient city of Athens crumbles and many warn that Europe will drag the City of London down with it too. As UKIP’s popularity and EU integration gain momentum, it is time to ask whether a British exit would bring independence or isolation; regain our sovereignty or lose our power; place national pride above prosperity.

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Getting Out

According to the Eurosceptic argument, the debt crisis has accelerated progress towards fiscal and political union. Fiscal union would require common banking supervision and greater regulation, stifling the City; it would also transform Westminster into a sort of regional parliament for Brussels. Europe would no longer consist of countries on one continent, but states of one nation.

Their plan is to secure an amicable divorce, given our relationship with Europe has mostly been a marriage of economic convenience, and uses Norway as its template. Norway is a member of the single market and exports 75% of its goods and services to the European Union. Norwegian oil, like British services, is highly valuable to EU countries. Therefore it is in Europe’s interest to maintain free trade with Britain.

But whatever negotiating power Norway can bring to bear comes too little too late, as all the early preparation of laws governing these sectors is concluded amongst EU countries alone. This essentially means that Norway is forced to follow EU laws without having any influence on their formation. There is also a time lag before these laws are implemented in Norway, giving EU firms a head start over their Norwegian competition. Furthermore, the British situation is different. Regulation for services is much more complex than for oil, Norway’s main export to the EU, potentially leading to an upsurge of legal arguments against UK standards. Thus by leaving Europe we cannot leave red tape behind, and the red tape will not be of our choosing.

The City is so dominant because it is seen as the financial centre of Europe. Many economists warn that the 160 European banks currently located in London would be put under pressure by their national governments to relocate. Banks of all nationalities are also likely to move their foreign exchange desks to mainland Europe, draining Her Majesty’s tax revenues. What about trade with the rest of the world? Eurosceptics argue that businesses which do not trade with the EU would no longer be pointlessly bound by EU rules. They also say that Norway has carte blanche to negotiate bilateral trade deals with the likes of China and Indonesia. However, there is no mutually exclusive choice between EU and world trade. In fact, a solid export base in Europe will bring in the revenue needed for many manufacturers to expand their horizons to more distant markets. More importantly, Britain’s negotiating position as an economy worth $2.5 trillion with 60 million consumers is little compared to the EU, which boasts an annual GDP of $16.5 trillion and 500 million consumers. As a case in point, the US-EU Free Trade Agreement is forecast to bring an additional £380 to each household in Britain, but President Obama has warned that Britain would have to renegotiate a bi-lateral deal if it were to leave. A Brexit would also exclude us from potential EU talks with Japan and India in the future, and this strength in numbers is also useful to get a better deal from multi-nationals, the EU roamer tariff for mobile phones being a recent example.

So if Britain were to pull up the drawbridge and use the Channel as a moat, it would be still be the subject of EU laws but no longer the sovereign, and poorer both in services and manufacturing.

Staying In

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If Britain does decide to stay, we must look at how it will define its place in a future of fiscal, banking and, perhaps in the long run, political union.

The case for fiscal union is this: because the Eurozone consists of very different economies with the same currency, if one country goes into recession the ECB will not be able to lower interest rates to spur spending and investment. However, a larger central budget could transfer money to suffering economies, smoothing out any downturn they may suffer. Governments pay into the budget in the good times and take out from the budget in the bad times. It is planned to break the vicious connection between banking debt and government debt, where governments like Spain currently have to borrow from banks to pay off their debts. This means that they are still in debt, just to different lenders. Some argue that fiscal union creates the issue of moral hazard, where the governments of weaker economies behave recklessly knowing that they will be bailed out by the stronger economies. However, this is where the Fiscal Compact comes in, committing national governments to live within their means and punishing them if they exceed a certain debt level without taking counter-measures. The Fiscal Compact, alongside the massive deterrent of the debt crisis, serves to reduce the risk of another recession.

Britain has not signed up to the Fiscal Compact and is not a member of the Eurozone, but we may have to contribute more to the EU budget to fund fiscal union. This may well be in our national interest, shielding both the Eurozone countries from another dramatic downturn and the United Kingdom from the stifling side effects to our growth. But even if governments borrow within their means having signed up to the Fiscal Compact, the banks may still plunge the EU into recession. Hence the last step is to establish a banking union. So far, the G20 has already agreed on a leverage ratio of 6% for 8 SIFI banks and 5% for their bank holding companies. At the EU level, a cap on bonuses has been set at 100% of salary, but many banks have simply raised wages in response. The most important elements of banking union are outlined below:

1)      As of mid-2014, the ECB will work with national authorities to enforce a single set of rules on Eurozone banks whose assets exceed €30 billion.

2)      A single deposit insurance scheme to be introduced to prevent bank runs.

3)      A single bank resolution mechanism for winding down failed banks

The first of these prompted concerns that the Eurozone, acting as a unanimous block, would effectively impose legislation on those member states which have not chosen to join single banking supervision. However the Chancellor has negotiated a double majority voting system, where any banking law would need a majority in both the Eurozone and non-Eurozone blocks to pass. He also secured Britain against any future discrimination where the ECB might have set capital rules to put London at a competitive disadvantage. This measure gives Britain further scope to negotiate its relationship with Europe, as Germany has stipulated that it will only accept the new supervisor on the condition of treaty change.

For the second step, the Eurozone has not yet come close to pooling its resources. Germany is strongly opposed to the measure, believing its taxpayers will shoulder a great deal of the burden. The scheme might instead be funded by the Financial Transactions Tax, which would raise €57 billion a year according to EU Commission estimates (minus €10 billion without Britain). This places a tax of 0.1% on the exchange of shares and bonds and 0.01% across derivative contracts, affecting all transactions with Eurozone banks. The Eurozone countries have agreed to press ahead with this in spite of legal challenges.

The third step has met much opposition, most notably again from Germany, arguing that national authorities should decide which banks to liquidate and that the Commission would be torn between its duty to shut down banks and to enforce state aid. A painstaking economic solution must be worked out before political union can even get underway and it is unlikely that countries will change their defining approaches to the EU without significant concessions.

So with such substantial change, there is bound to be considerable disagreement, room for negotiation and necessity to compromise. Britain’s hand is strengthened by the threat of its exit, which would deprive the EU of 14.8% of its economy, €14.7 billion contribution to its annual budget, drain time and effort in protracted negotiations and undermine market confidence in the EU. So what should Britain seek from these negotiations?

We should first insert a pro-growth protocol into a new treaty which forges a real single market in services and cuts back on unnecessary regulation. The EU’s biggest long-term task is to improve competitiveness and this is an area where Britain can play a strong and active role. Secondly, we could work for a British veto over financial regulation, like the one France possesses for agriculture. Our share of the wholesale financial industry in Europe is 36% compared to France’s share of 20% in agriculture.

There will need to be concessions in return. Although the Government has ruled out a Financial Transaction Tax unless implemented globally, it might not be as harmful to the City as they think. The UK introduced a similar but much heavier task over 25 years ago: the Stamp Duty Reserve of 0.5% on the transaction of all shares listed on the London Stock Exchange, regardless of the traders’ nationality. This means that companies cannot escape the tax by leaving the UK. Moreover, the costs of mass re-location, not to mention the clarity of the European legal system, means that big companies will still issue bonds/shares and hedge their transactions in London. If the UK were to join the Eurozone’s FTT, the US would face no competitive disadvantage and could raise significant revenue by introducing the tax itself. The tax could be shared between the Treasury and Brussels, gaining significant bargaining power over Treaty Change without contributing more to the EU banking budget and increasing national revenue. Moreover, A Eurobarometer poll found that 65% of Britons interviewed were in favour of the tax. Politically, this could boost the pro-EU cause, showing that the EU is acting in the interests of the British public and ensuring that the financial sector would pay its share towards any future bailout.

Disraeli and Cameron: Splendour or Isolation?

Disraeli and Cameron: Splendour or Isolation?

So the Europe of the future provides opportunities and challenges. In the 19th century, the policy of ‘Splendid Isolation’ was characterised by a focus on British territories overseas, as free trade was the engine of the Empire in an era of increasing international competition. Whereas at that time isolation from Europe meant engagement with the world, today Europe is Britain’s major market. Today it is not Napoleon or European war ravaging the continent, but the debt crisis. Greater unification does alter our place in Europe, but it strengthens Europe’s place in the world. Perhaps Brussels is not the new Jerusalem, but if we seize the chance to change our relationship with the continent, Britain will build itself a better future.

Originally posted on Forward Forum 

Prison Reform

TWS has an event on prison reform tomorrow, presenting a paper by Josephine Delves and Robert Norfolk-Whittaker. Read on for a taste of tomorrow’s paper. 

Foreword

The idea for this paper came from my experience of working on a rehabilitation project in Springhill Prison, Buckinghamshire in 2011-12. During that time I gained an insight into the difficulties that offenders face when they are released from prison, and was surprised at the limited support available to those recently released.

I saw at first hand some of the coalition government’s policies at work, and had the opportunity to engage with offenders at the critical juncture, just after they are released from prison. My experience showed me that current and past government policy aimed at reducing reoffending has not worked. Unfortunately, on a national level the evidence points to the same conclusion.

The authors of this paper have lived through an era in which stigma and hostility towards offenders is not only commonplace, but pervades public discourse on crime and punishment. During the last 20 years, political rhetoric on law and order has been dominated by the mantra ‘tough on crime’. However, since the peak in crime during the 1990s, the crime rate within England and Wales has halved. ‘Tough on crime’ rhetoric is no longer as relevant as it once was. This presents us with an opportunity for dialogue and discussion about the direction we are heading in, and the vision we have for the criminal justice system as a whole.

Our experiences working in the third sector, on rehabilitation programmes and in human rights, have led us to question the punitive approach. Although crime rates have dropped, the reoffending rate within England and Wales stands at almost 50%. This shows that in spite of punitive measures, prison is not deterring offenders from recommitting crime. The Conservative Party recognised the need to redress the balance in favour of a rehabilitative approach in their 2008 policy paper, ‘Prisons with a Purpose’. However, the policies enacted under the coalition government have not lived up to this promise.

The best way to prevent reoffending is of course to prevent offending in the first place, through addressing the root societal causes of crime. However, focusing upon those who have already fallen on the wrong side of the law, in this paper we will argue for a shift in attitudes, away from punishment and retribution towards reconciliation and rehabilitation. There are glimmers of hope in the numerous pilots and projects run throughout the country that offer support to offenders re-entering the community and have a genuine impact upon rates of recidivism. Through this paper we hope to show where government policy is currently going wrong, highlight successful initiatives and to make suggestions that build upon these and other positive examples so as to create a Criminal Justice System that helps people to turn their lives around.

Robert Norfolk-Whittaker

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Executive Summary

Background

The prison population currently stands at around 84,000. This constitutes a 100% increase on the 1993 prison population.

During this time the rate of reoffending has remained stubbornly high, with about 50% of offenders reoffending within a year of release from prison.

The reoffending rate has remained consistent despite a range of initiatives and policies aimed at tackling this problem.

The Cost of Reoffending

Reoffending in England and Wales is estimated to cost the economy £9-13 billion every year.

Reoffending is helping to maintain the high prison population and significantly contributing to the amount of crime.

Each new prison place costs £170,000 to build. The average cost per prisoner per year is around £40,000.

Key Proposals

We propose that the government sponsor a Royal Commission on the CJS, and reoffending in particular, in order to reframe the debate and divorce policy from party politics.

Policy should be directed toward greater levels of support for those leaving prison. This should include:

  • The creation of a national offender support scheme.
  • A renewed emphasis on the social work aspect of probation work.
  • The marketisation of the probation services deserves further consideration before being rolled out nationally. The government should wait for the result of pilot projects and give due weight to consultations.
  • The Prisoners’ Earning Act is counterproductive, it should be repealed.

Josephine Delves and Robert Norfolk-Whittaker

The ECB Rate Cut

The ECB cuts interest rates, and looks like it’s doing something powerful to prevent a deflationary bust in the Eurozone. We try to explain why it’s a weak move, over on Pieria:

“The reasoning is that the rate cut will lower short-term money market interest rates, and therefore shift the cost of funding downwards across the entire yield curve, giving a boost to spending in the Eurozone at a time when it is sorely needed. …. [In fact] it is a way of appearing to deliver major monetary stimulus without doing much at all. It allows the ECB to carry on doing close to the minimum necessary to stimulate the Eurozone, even as it fails on its own terms – the Eurozone is on course to enter a disinflationary bust, with core inflation heading well below its (already highly conservative) mandate of an inflation rate just below 2%.”

Read on here

What to do with a problem called Kim?

Chris Watkins

Here we go again. On September 11th, satellite photos were released showing steam rising from the towers at Yongbyon, one of North Korea’s nuclear research facilities. On the 17th, the country failed to answer or provide evidence that rebutted a special UN human rights report report accusing it of “unspeakable atrocities”. On the 21st Kim Jong Un cancelled plans to allow hundreds of families split between North and South since the Korean War to be reunited at the Diamond Mountain resort in the North. Quite the active ten days for the Kim regime. These are just the latest in a long history of bellicosity and blatant disregard for international law.

YongbyonThe Yongbyong nuclear research facility

This confrontational attitude is made more interesting in contrast to Pyongyang’s recent “charm offensive”, where the country seemed increasingly willing to engage diplomatically. There was noise about restarting 6 party talks with denuclearization on the table, and Seoul had high hopes for the family reunification program. On September 2nd South Korea promised extra aid as a conciliatory gesture on account of improving relations, and on September 16th the joint industrial park at Kaesong was finally reopened following a 4 month hiatus. All of these positive steps have been wiped out in one fell swoop following the recent shift in tone.

Entrance to the Kaesong Industrial ComplexEntrance to the Kaesong Industrial Complex

So, what gives? Why restart a globally condemned nuclear research program, further enrage human rights activists, and stonewall efforts to thaw relations just when the international community is beginning to respond positively to its overtures?

It turns out, in fact, that this is a trend. The North Korean leadership isn’t stupid, it isn’t naive, and it certainly isn’t irrational. For decades senior officials in Pyongyang have walked a diplomatic tightrope as they try to squeeze maximum aid out of friends and foes alike. The strategy is this: provoke for a period, but make sure not to step too far out of line. After all, provocation is a useful tool only if it doesn’t land you in a war with the world’s remaining superpower and its allies. Once the others have gotten themselves worked up over these actions, (the sorts of things that gets North Korea lumped into the so-called “axis of evil”), offer to come to the bargaining table in return for no-strings-attached foreign assistance ensues. Rinse, wash, and repeat.

Aid is absolutely necessary for the regime’s survival. The DPRK’s economy has long ceased to be capable of supporting its own population. Assistance not only prevents vast swathes of the population from starving, but also helps to consolidate political control. Provided without distribution conditions, these supplies of food, fuel, and industrial equipment are allocated according to an individual’s loyalty. Kim Jong Un strengthens his control by rewarding those who are and withholding from those who are not.

Kim Jong-unKim Jong-un

Up until the early 90’s it was easy to secure enough aid to go around, even without the provocational attitude we see today. Pyongyang skillfully played China and the Soviet Union off of each other; despite their common affinity for Marxist ideology, differing strategic interests and personal acrimony meant that the two countries were never really allies, and came close to war several times. Like two jealous parents aiming to earn the loyalty of an only child, North Korea exploited this animosity to secure aid from both countries in ever-increasing amounts.

Many North Koreans actually look back with fondness on this period during the 1980’s under the rule of the “Great Leader” Kim Il-sung; the Public Distribution System that handed out rations always had enough rice and grain, and people would only go hungry only through disloyalty to the regime, not because it couldn’t afford to feed them.

However, with the collapse of the Soviet Bloc also came the collapse of aid to North Korea. Russia was in disarray, and while China would still help to some extent although their interests had shifted as they initiated their own market reforms. Within a few years the country was destitute, and a horrific famine endured for much of the decade. The only way the country could survive was to extract as much aid from China and others, but without the leverage of its rivalry with the Soviet Union. Ironically, the countries that are the targets of the harshest North Korean propaganda – Japan, South Korea, and America – were in fact the countries whose aid prevented the death of even more North Koreans during this time.

North Korea Flood Aid

Given this background, what should the US and its allies do to best improve the lives of North Korean citizens and promote stability in a rapidly growing region?

According to Andrei Lankov, a specialist in Korean Studies at Kookmin University in Seoul, the best strategy is to expose as many North Koreans to information about the outside world as possible, then simply wait. Most Korean strategists believe regime collapse is inevitable. The only question is how long Kim Jong-un or his successor can hold on. In today’s global reality, even state-sanctioned activities threaten to destabilise the country.

The North’s Kaesong Industrial Complex, which provides 123 South Korean companies access to the cheap labor of 53,000 North Korean workers, illustrates the pressures currently facing Mr. Kim and his advisors. Kaesong has been both a great blessing and curse to Pyongyang. It is a critical source of hard currency; $90 million a year flows into North Korean government coffers in return for its citizens’ labour, and is used to import fuel, food, and military equipment.

However it also exposes workers and their families in the Kaesong region, around 200,000 in total, to South Korean culture and products. Strict regulations are of course in place that carefully regulate what can and cannot be said or shown to workers, but even the factory buildings themselves speak volumes about just how much more advanced the South is.

The wealth of Seoul by nightThe wealth of Seoul by night

This exposure presents a threat on multiple fronts; ordinary North Koreans are becoming more aware of the deficiencies that they have been enduring for decades, but simultaneously see an increases in their standard of living. When survival ceases to be a primary concern, individuals are able to think, to talk, and to organise. This is the stuff of nightmares for the Kim family. A population aware of the world beyond their borders and able to rally itself means almost certain downfall for the regime.

Ordinary citizens are forced to work on large infrastructure projectsOrdinary citizens are forced to work on large infrastructure projects

Already there are signs that even those without the privilege of working at Kaesong know more about the outside world than at any other time, and are increasingly willing to speak out about it. The current generation of youth will be the first in the country’s history that grows up with the universal knowledge that they are being fed a lie by their government. Smuggled movies and music that show life in South Korea; cell phones with which they can call relatives in China; computers that can be used to read and hide Western literature and news. These are all increasingly common ways in which the government is losing control over its population.

This new-found propensity to flaunt the rules doesn’t just stop there, however. There have been several instances of protest in the past decade. In 2009 hundreds of middle-aged women clashed with police after the government attempted to initiate a clamp-down on the local markets which now form the backbone of economic life in the country. The government couldn’t make the restrictions stick.

In 2011 news reports trickled out announcing that for the first time ever, citizens in several major cities joined together in organised protests against the government demanding food and electricity. They were immediately repressed, but when the state authorities tried to identify the organisers, they were met with silence. As far back as the late 90’s, the combination of a huge network of paid informants and the social pressure to oust disloyal neighbors would have surely led authorities to the guilty parties. People are no longer beholden to the state in the way they once were.

The government’s control over its people in North Korea is rapidly diminishing as it fails to balance its need for foreign investment, the personal greed of the country’s elite, and the ease with which modern technology disseminates information. Perhaps the modern world makes it simply impossible to maintain control to the same extent as it was in the past. Either way, it is in nobody’s best interest to react with aggression to North Korea’s latest desperate attempts to grab the attention of the international community and squeeze much-need aid out of interested parties.

Repeated provocations are hard to ignore, especially for those on the receiving end, like the South Koreans, but everyone stands to gain from such a strategy. In fact, encouraging cooperation despite such provocation will help to accelerate the downfall of the regime, and lead to a better life for the true victims of the current situation – the tens of millions of ordinary North Koreans who continue to endure the harshest of realities.

Originally posted on the Forward Forum blog