In London, a 30,000-strong march and rally heard Labour’s London Mayoral candidate Ken Livingstone, who argued: ‘There is still time for the government to adopt a more constructive position and enter into genuine talks. That would be the responsible course of action and I urge them to think again and act in the interests of public servants and Londoners.’

Livingstone claimed that for all the talk of ‘gilt-edged pensions’ for public sector workers, it is MPs who get the best pension deal among public servants having voted to award themselves a guaranteed two-thirds final salary pension after just 20 years service that ensures at least £40,000 a year. Two days later a health worker calling BBC’s Radio 5 Live pointed out that after 42 years service she will receive a pension of £7,500 – and that’s before the government’s reforms.

TUC general secretary Brendan Barber accused the government of scrapping a tax on bankers in favour of a tax on nurses, teachers and lollipop ladies, while PCS general secretary Mark Serowtka vowed to strike again and again until the government agree to proper negotiations – a pledge greeted by whoops and cheers from the crowd along London’s Embankment.

The lack of decent pensions in the private sector, he said, was no good reason to cut pensions for the public sector workers. It was a result of Thatcher’s anti-union policies which stripped private sector workers of their rights and protection.

In other cities, 20,000 gathered in Manchester, 10,000 in Edinburgh, Glasgow and Sheffield city centre (see pic below). John Stevenson, from the GMB in Sheffield, directed some predictable ire at local MP Nick Clegg: ‘Nick Clegg accuses everyone involved with the trade union movement of telling porkies. But remember what Mr Clegg said to the students? He is the expert in telling lies – not us.”

The numbers striking and turnouts at rallies belied Tory efforts to portray the day as simultaneously damaging and a ‘damp squib’. And despite failing (to the annoyance of many) to back the strikes, Ed Miliband still managed some to express some genuine anger on behalf of ‘the dinner lady, the cleaner, the nurse who earns less in a week than George Osborne spends on his skiing holiday’.

On Tuesday 20^th September, a mere five days before 2011 conference kicks off, the NEC finally published its set of recommendations in response to the Refounding Labour process. While it contains many welcome proposals (see the brief summary below) there has been no time left for members to discuss their views on these changes.

Crucially, two critical issues seem yet to be decided. As reported by constituency NEC member Joanna Baxter on Labour List, the NEC will discuss further the questions of whether registered supporters will be given formal voting rights in the party (and reports suggest they will propose a role in elections for leader and deptuy leader) and, secondly, the allocation of votes at annual conference between affiliate and constituency sections. Astonishingly, this discussion will take place on Saturday evening, just one day before conference will be asked to vote on the whole package on a take it or leave it basis.

The only way out of this wholly undemocratic mess is to support the call by Bridgend CLP for the vote on Refounding Labour to be postponed to a special conference. Given the range of changes proposed, party members need to be given time to consider the new rules, and a means to debate and amend them. The propsect of non-members being given a formal voting role crosses a line for many in the party, and the domination of conference by three big unions remains a crucial  issue to be addressed. All the commitments to openness, democracy and for a real role for members will count for little if the party is, as looks likely, railroaded into agreeing changes without due deliberation and debate.

As things stand, the agreed NEC document ‘Refounding Labour to win’, and the accompanying amended Rule Book, omit major changes on the two most controversial issues.

First, it endorses maintaining the current division of conference votes – 50 per cent to Trade Unions and affiliated organisations (albeit henceforth to include Young Labour and the Association of Labour Councillors), and 50 per cent to CLPs. Secondly, it  provides for no major change to the rules for electing the leader and deputy leader other than to curb the current practice of double voting.

Indeed, in the summary and in an NEC appendix to the Rules, the party reaffirms the rights of full members over registered supporters, stating that Labour Supporters would ‘enjoy informal involvement and participation’ only. It would be entirely unacceptable for the NEC to make major changes on these two issues on the eve of conference.

Refounding Labour to Win also recommends:

• a change to clause 1 of the Party’s constitution, so that in addition to the aim of ‘maintaining the party in parliament and in the country’ the party will also seek to ‘bring together members and supporters who share its values to develop policies, make communities stronger through collective action and support, and promote the election of Labour representatives at all levels of the democratic process.’

• changes to the rules setting out the rights and duties of the leader and deputy leader.

• a series of changes to how CLPs are run including greater freedom to choose their own party structures and officers, and greater space for political debate in party meetings.

• setting up a registered supporters scheme whereby local parties recruit supporters, although national online registration would also be possible. As noted, currently there is no proposal for registered supporters to have any formal role in the party elections, voting or selection procedures (although presumably this is subject to the NEC rethink on Saturday?). According to Joanna Baxter’s report, these lists would be locally managed, although how that will square with any role they may have in leadership elections, or with a national online recruitment process, is unclear. Local parties would be expected to hold at least one consultation meeting with supporters and potentially have much greater informal involvement than that.

• a series of as yet fairly vague commitments to improve the transparency and accountability of the National Policy Forum processes, including an online ‘audit trail of proposals’ to track what happens to submissions to the NPF. Refounding Labour to Win clearly acknowledges the criticisms of the NPF without having a very clear idea of how it might change. Although it reaffirms the sovereign role of conference, the document is silent on changes to how NPF proposals might be debated or voted on.

• a new funding regime for local parties, establishing what Joanna Baxter termed ‘a minimum wage for CLPs’ seeking to support poorer/weaker CLPs and support CLPs’ ability to send delegates to conference.

• candidate contracts to be signed by all local council and parliamentary candidates specifying their duties.

• Local Government Committees and County Parties to be replaced with Local Campaign Forums while there’d be enhanced rights (including voting rights) for the Association of Labour Councillors.

• a beefed up role for Young Labour, including an annual conference and enhanced rights to vote, nominate and submit motions to conference.

• new membership rates.

• training and support for local organisers, campaigners and prospective candidates in selection contests

• commitments to enhance diversity.

See the full text of Bridgend’s proposal go to www.labourdemocraticnetwork.org

Read the ILP’s submission to Refounding Labour.

For the second day in a row Government Ministers have been unable to defend Cameron’s lie that the public sector pension scheme is ‘going broke’. The claim was made by Cameron in a speech on Monday 28^th June. Yet, it wasn’t the Labour opposition leading the scrutiny of this latest piece of Tory mendacity but the BBC Today Programme’s Evan Davis.

On Wednesday 29^th Treasury Minister Justine Greening was unable to identify anywhere in Lord Hutton’s pension report where he supported the claim that the pension system was unaffordable. Repeated questioning by Davis reduced Greening to confused evasion. Yet despite having a full 24 hours to rustle up a defence of Cameron’s claim, on Thursday, Minister for the Cabinet Office and Paymaster General Francis Maude similarly floundered around when subjected to the same question.

In the same programme PCS Union leader Mark Serwotka gave a fairly effective defence of the union strike action. His first line of argument was that the government had no intention of negotiating seriously on the key pensions changes, something Maude was unable to contradict. But it was when Serwotka raised the issue of affordability that Davis returned to his key point. On this Davis was on solid ground because Hutton’s pension report shows that the cost of public sector pensions will in fact fall as a proportion of GDP from this year onwards. Hutton’s argument for reform is about fairness and cost saving, not affordability, and Maude and the government simply have no answer to this.

Maude’s only response – ‘as has often been pointed out the pensions system is unaffordable’ -was itself revealing. One of the government’s most successful tactics has been to repeat a line so often that it becomes accepted as true. The economic crisis being Labour’s fault and public debt being unaffordable are the most obvious and successful examples. The kind of broad brush, man of the people, claim that ‘hey look chaps, the system’s going broke’ is classic Cameron. And it is thanks to Davis’ intelligent questioning, an economic expert on his own ground, that such claims have been exposed as false.

The renewal of the Labour Party, encompassing changes in its structures and practices, is long overdue and we welcome the Refounding Labour initiative. There is much to commend in the Refounding document and we applaud both its recognition of the problems and its openness to new ways forward.

The campaign for a successful, participatory and democratic Labour Party has been at the heart of the ILP’s politics for over 30 years (see below). In debates about party democracy over the last 30 years, we consider we have taken an honourable and principled approach which sometimes brought us into conflict with those seeking democratic reform for partisan advantage. Our responses to Refounding Labour are guided by this record and a number of key aims:

• for a vibrant and participatory party
• for a party that is, in Ed Miliband’s words, ‘rooted in communities, dynamic and campaigning that can win the argument for a fairer, more equal and more democratic Britain’
• for a party which makes membership meaningful, beyond being electoral foot soldiers
• for a democratic party in which members have an influential role and there is a direct and transparent connection between members’ views and policy.

1. An outward looking party

Local parties should be free to organise their activities in new ways, and the Party nationally ought to encourage and support such innovation as much as it can. An urgently-needed part of this new way of working is for political education among party members and those in the wider community who share some or all of our vision. We agree that Labour’s success is dependent on our members being active and engaged in their local communities. To that extent, and in building on the successful examples of vibrant local party campaigns, we agree with many of the suggestions in Refounding Labour which point towards innovation in the way that local parties organise themselves and engage with their local communities. Local parties do have to maintain certain democratic procedures for formally determining positions on policy and for conducting (re)selection processes. Aside from those areas, formal business can be kept to a minimum. However, Labour’s project of ‘a fairer, more equal and more democratic Britain’ has to be campaigned for. An informed and engaged membership at grass roots level is vital not only to win elections but also to win hearts and minds and to counter the dominance of a right-wing media. Local parties are not, therefore, simply in the business of reflecting views of local communities, but also of campaigning for change. Here, keeping the formal part of local party work to a minimum would allow constituencies and branches to have more open, engaging and educative meetings.

2. A  voice for members

Both Refounding Labour, and the current leadership have openly acknowledged that party members have been neglected and sidelined within the party for many years. As Ed Miliband said, the previous leadership ‘spent too much time treating the membership as a threat to sensible policy and direction’. It is very welcome that Refounding Labour acknowledges the need to make members feel involved and listened to. The democratic deficit in the party is profound and no-one reading Refounding Labour can be left with any view other than that internal party processes and rules are in urgent need of a democratic overhaul. Partly because of the nature of the Party and its history, this is a complex and difficult area and we offer a series of guiding principles only:

• We would welcome the creation of registered party supporters but there should be no formal role for non-party members in any of the voting processes within the party, including election of leader and deputy leader, voting on party policy and selection and reselection of parliamentary and local government candidates. Enhancing the voice of party members is incompatible with allowing non-members any formal role. Participation by registered supporters in local party discussions and party conference in an informal role is to be very much welcomed and registered supporters could be given special mailings, invites to social and other events. Indeed, broadening such informal consultations would allow policy debates to be informed by dialogue with a wider audience.

• Any changes to how party policy is determined ought to fulfil this basic criterion: that there should be a much more direct, democratic and transparent connection between the views of individual party members, their constituencies and official party policy.  For this to be realised, the processes by which party policy is determined have to be completely overhauled. Even if something akin to the National Policy Forum is retained, at least in the short to medium term, its operation and procedures must be made more simple and transparent and it must constitute a more direct link between constituencies and party conference. As part of this, policies emanating from the NPF should be properly debated and voted on at party conference and there should be a mechanism whereby amendments can be tabled and minority reports, where appropriate, are also debated and voted on. For this direct, democratic connection between individual, local and national levels to be realised, serious work and resources will have to be allocated to ensuring there are adequate procedures for ‘reporting up from’ and ‘reporting back to’ the local level. Examples of such democratic practices, such as in the consumer co-operative movement, could guide this.

• Annual conference should be reaffirmed as the supreme body of the Party but its processes and voting procedures need a democratic overhaul. The key democratic deficit here is that trade union votes are now concentrated and dominant as never before. As Refounding Labour makes clear, barely a handful of large unions control around 50 per cent of votes at conference. A revitalised role for party members is not possible if they are so marginal to decisions at conference. A phased process should be introduced whereby the Union share of votes is gradually reduced if and when party membership increases. By creating a conference more relevant to members, playing a real role in the democratic life of the party, may help to address the growing neglect of conference by constituencies that Refounding Labour has identified. In addition, initiatives to increase participation by registered supporters in discussions, and debate around conference, should be encouraged and will help to shift the emphasis of conference attendance away from corporate lobbyists and towards communities and campaigns and movements for change. An annual party ‘festival’ would add to the variety of voices and debates heard by the party and would be very welcome.

3. Renewing the party

The Party should learn lessons, where appropriate, from  the use of social and new media for building networks and creating new forums for debate and dialogue as well as fundraising and campaigning. Successful examples deployed by campaign groups like 38 Degrees, Compass, Progress and Obama’s presidential election can help to guide this practice. Many other issues around renewing the party have been covered in the initiatives necessary to build an ‘outward looking party’. The key to both will be a revitalisation of membership and a freedom to innovate and learn from one another at constituency level. Such renewal is necessary not only for electoral purposes; an active party is also important to avoid the party leadership, particularly when in office, becoming cut-off from the wider society.

4. Winning back power

To protect and reaffirm the role of selection and reselection procedures as a democratic bedrock of the party also means tempering the centralised, top-down interventions by the national party in local selection procedures. As already argued, there should be no role for non-party members in the formal business of selecting electoral candidates. The undemocratic and counter-productive imposition of candidates in parliamentary, mayoral and devolved assembly elections has been a disaster for party democracy and the party’s public image.

About the ILP and Labour Party democracy

The ILP has a long history of campaigning for democratic change within the Labour Party. We were at the forefront of the early campaigns for internal reform in the late 1970s, when the left agued for (and eventually won, in 1979) the right of constituency Labour Parties to deselect sitting MPs. This right, now trumpeted as a pillar of party accountability in the Refounding Labour document, was won in the teeth of opposition from many MPs and the right wing of the party.

The ILP was also at the forefront of the campaign to broaden the electorate for leader and deputy leader beyond MPs to include party members and trade unions. A new system was eventually agreed in 1981 creating the ‘electoral college’ which still exists in modified form today, whereby the trade unions had 40% of the votes, MPs 30% and constituencies 30%  (the proportions are now, in line with the ILP’s view at the time, a third for each). In this process serious differences opened up between the ILP and much of the rest of the left. In arguments over the electoral college, the ILP saw that the left had to ‘compromise or be damned’ and stood up for a compromise position, not unlike that eventually agreed. Other groups on the left chose to be damned as undemocratic and stuck out hopelessly and erroneously for a much more trade union-dominated system.

More importantly, the ILP argued on the grounds of basic democratic principle, that the constituency element of the electoral college should be based on one member one vote (OMOV). Others on the left argued for the retention of a delegatory system which placed constituency votes in the hands of activists and officials, a system which we argued, correctly as it tuned out, invited a manipulative and undemocratic political practice. The ILP’s stance developed further and we came to a position which argued that to create a participatory democratic system, OMOV should include a requirement for members to attend a minimum number of party meetings.

We sustained the campaign for this system through the 1980s, though much of the force had gone out of the party democracy movement by the late 1980s. However, in 1988 OMOV was introduced for the constituency section of leader and deputy leader elections and in 1993, under John Smith’s leadership, the trade union block vote was removed from elections to select parliamentary candidates and replaced with OMOV (without any attendance requirement). The ILP maintained its campaigns for more democratic change, arguing in the pamphlet Taking the Party to the Cleaners that annual conference was overly dominated by trade union block votes, often operating in cahoots with party leadership.

With the advent of Tony Blair’s leadership, the process of democratic reform was put into reverse and the new Labour leadership set its face against the party membership. Despite his previous championing of OMOV, Blair oversaw cumbersome and leadership-dominated processes for selection of mayoral, MEP and devolved assembly candidates with disastrous results. Blair also sidelined conference from any significant role and created the National Policy Forum as a mechanism for taking policy debate out of public view. When the NPF and the Party into Power initiatives were introduced, the ILP argued that the processes needed to be made simpler, more direct, with more room for minority views to be heard and with conference having a key role in debating and deciding on options – all ideas that have returned to the forefront of thinking about reform to the party’s policy process.

Saturday 12^th March was billed as ‘Sheffield’s day of rage’ – an opportunity to vent our anger and opposition to the Lib Dems who were holding their spring conference in Sheffield. In the event, a lively, good natured but disappointingly small protest took place. Instead of the billed ‘10,000 plus’ there were maybe 4-5,000, a rare occasion when police estimates were near the mark.

Indeed, this was no doubt much to the chagrin of the South Yorkshire force who had gone to extraordinary lengths to prepare for the occasion, running up a bill of £2m, including a 8ft high ‘ring of steel’ round City Hall, the conference venue. They were ready for trouble, though, in the event, little of the massed back-up was needed.

In my estimation – I’m happy to be corrected here – the turnout relied heavily on the older left, small far-left parties and the trade unions. Particularly noticeable was what seemed to be a small showing from the city’s students. Given the fury over Clegg’s betrayal on student fees and the fact that there are over 40,000 students in the city (an estimated 10,000 in Clegg’s own constituency) this is a worrying sign that the force has gone out of student opposition.

Indeed, the protest showed above all that the anti-cuts movement needs to find some coherence, leadership and popular appeal, and fast. If this protest was anything to go by, the trade unions are doing some important work but it’s not apparent that they are reaching out beyond their traditional areas of support. Certainly, there was no groundswell of popular support for this demonstration. If opposition to the ConDem coalition is to exert real leverage, it will have to start to mobilise those in Tory and Liberal constituencies like Clegg’s Sheffield base.

Unite’s Len McCluskey acknowledged as much, calling on Liberal Democrat supporters and members – even MPs! – to come out against the cuts and the privatisation of the NHS. If the London demonstration on 26^th March fails to mobilise this kind of broad popular opposition, then the momentum will really be lost from anti-government forces. A start would be for the Labour Party and its leadership to get behind the 26^th March demonstration, backing it as a key moment from which opposition to the coalition can be built.

Why the Labour leadership should back the TUC’s ‘March for the Alternative’.

Click here for more information on the TUC’s March for the Alternative.

In a conference hall not so far away, the labour left gathered on June 12^th for the Compass annual get together. Launching this year’s event, optimistically titled ‘A New Hope’, Compass chair Neal Lawson set off on a slightly curious note declaring ‘we’re not rebel fighters, we’re building a death star’. If that was slightly off-key, much of the rest of the conference followed, exposing a Labour left that is only slowly getting to grips with the new politics of opposition.

Of course, Compass by its nature is a very broad organisation and its conferences are interesting partly because of this, a large (1,000 people), comradely forum for the exchange of quite divergent views. In fact, over time, two ideas seemed to form a core of opinion at the conference: that proportional representation is essential for the future of left politics and that Labour should be a ‘pluralist, not tribalist’ party.

The first of these is a long standing one on the left and has been central to the efforts of those – from Blair and Ashdown leftwards – to fashion a realignment of politics around the centre left. Current government plans for a referendum on the AV system, with Tories campaigning against, leave this aim tantalisingly out of reach for those who see it as essential.

The second pillar – for a Labour politics that is not tribal but pluralist – is becoming a frequent refrain in Compass, among Labour leadership contenders and among the wider commentariat.

Pluralism

But there are very different versions of this call for pluralism. At the level of party politics, one explanation is that it is a reaction to the perceived failure of Labour to fashion an anti-Tory ‘rainbow coalition’ in the wake of the general election. The ‘tribal’ interventions of David Blunkett and John Reid, both of whom came in for considerable stick over the course of the conference, were seen by many to represent an ‘old politics’ that we need to move away from in the new coalition-dominated future.

There were also those present on the Labour left who clearly feel some empathy for the small parties that are seen as more left wing than Labour – such as the Greens’ Caroline Lucas who, despite having defeated a Labour candidate in the general election, was given an enthusiastic reception by this clearly non-tribalist crowd.

However, it was Lucas who presented the least compelling case for pluralism and highlighted the limited vision of this variant of political pluralism. Teaching the assembled grannies to suck eggs, she pronounced on how remaining in the Labour Party meant many people had to make difficult compromises to accommodate the distance between their own beliefs and the Labour’s policy. No shit. Her solution, for a flowering of smaller parties (like her own in fact!), in which members can feel comfortable in their purity leads down a strange path, however. The left knows something about this, having taken the purity strategy to absurd People’s Front of Judea lengths in the past. But it also ignores the question of what then? What happens after this party pluralism has blossomed and PR has delivered a parliamentary mosaic of principled representatives? Presumably there are real issues of principle that necessitated the creation of separate parties in the first place? Don’t they then have to engage in the very same dirty compromises that she was lamenting a few moments earlier?

Some even asked whether you would want to see a majority Labour government again, with the clear implication that if your answer was ‘yes’ then you were obviously still wedded to the ‘old politics’. But what is so inherently progressive about having to make deals with the David Laws of this world? or in giving concessions to Alex Salmond’s narrow, particularistic, nationalist demands?

Rather more convincing and carrying greater potential, is the idea of a pluralist politics that connects the Labour Party and parliamentary politics generally in a more open and constructive way with non-party groups and campaigns. A party that is active on a local level, engaged and engaging, and at the forefront of campaigns around opposition to cuts would indeed help reinvigorate Labour’s internal politics. Such ideas are clearly having some purchase on leadership candidates debates with both Milibands arguing for a revitalised, active campaigning party. Even here there may be dangers however, and the Blairite dream of a dissolution of party memberships into looser networks of supporters, clearly still has some adherents. Internal party democracy still ought to matter, and for that to mean anything then membership has to become again something real.

A progressive alliance?

On other issues the conference veered wildly in its reading of the contemporary political scene. Throughout there was a persistent sense of denial about the formation of the ConDem coalition which clearly shocked some speakers quite profoundly. Compass’ political strategy, such as it is, has centred on the formation of ‘the broad progressive coalition’ and one feels that the group still has to come to terms with the fact that this notion has been blown out of the water by the Liberals’ post-election choice. The continued adherence to PR and pluralism does look a bit less convincing in world in which a Lab-Lib coalition is no longer the central element.

Even so, Compass also continue to reject the Blairite notion that the country is essentially conservative with a small c. Their, and much of the left’s, argument against New Labour centred on this claim. Where New Labour used the ‘conservative’ nature of public opinion as a reason to move rightwards, those further to the left argued that this reading of the public’s values was mistaken. A different option that neither takes, is that New Labour was right on its assessment but wrong in not seeking ways – long term, hard and slow – of shifting that opinion. Lawson even commented that over thirteen years in government Labour did nothing to build a progressive movement. The left, one suspects on this evidence, would now rather take the easier option of thinking that the country is with us and build a political strategy on that assessment.

Indeed, several speakers cited the combined vote for Labour and Liberals as evidence of a ‘progressive majority’ in the country. Yet much in Labour and the Liberal manifestos was anything but progressive: both argued for substantial and damaging cuts, neither gave a convincing case for the public sector and against the private, neither presented a convincing critique of the financial sector, both indulged in anti-immigration gutter politics to pander to the ‘bigoted women’ (and men) of the country. Most amazing was New Statesman political editor, Mehdi Hassan, who cited the polling that 1 in 4 LibDems were unhappy with the coalition as evidence of a progressive opportunity, seemingly ignoring that that means 3 in 4 are happy with rampant expenditure cuts, the dismembering the public sector and the creation of a two-tier schools system.

In a warning that ought to give Compass and all on the left pause for thought, John Harris argued that ‘if your argument is also the one you are most comfortable with, it is probably wrong’. Maybe some in Compass fall prey to reading from the political landscape what they are comfortable seeing – a country that is ‘with us’ and a political strategy that seamlessly mobilises a coalition to bring the progressive majority into power through PR.

Coalitions and cuts

Opinions also differed markedly on the prospects for the ConDem coalition and what the appropriate response to the cuts should be. In a seminar on the cuts there was much debate over the appropriate balance between raised taxes and reduced expenditure. Only one speaker made a serious case for limiting cuts, arguing that the widespread austerity policies now being enacted in Europe would trigger a renewed recession. Some contributions from the floor were predictably simple – ‘we say no to cuts!’ – but in the main Polly Toynbee, who chaired the session brilliantly, did not allow simplistic answers, or questions, to go unchallenged.

A more serious omission was of any quid pro quo that the left should ask for in return for reduced public expenditure. If cuts are to be something other than a process of making the poorest pay for the sins of the financial sector, then they must be accompanied by some attempt to challenge the power of financial markets over the longer term. Several speakers cited ‘market reactions’ as a key reason why cuts were necessary, yet none signalled any discomfort with that situation. The irony that the very credit ratings agencies who acted so irresponsibly in the build up to the crisis should now be arbiters of what the government should or shouldn’t do did not seem to register with the speakers. Next to that, all the talk of a ‘Canadian-style’ consultation over the cuts, even democratic politics, comes to nought if markets have the final say.

How soon these questions bite will in part depend on the fate of the governing coalition. Here too, opinions differed. The coalition was, Lawson said, ‘the thing none of us expected’, a claim that betrays a certain lack of foresight if nothing else. Yet both he and John Harris were, rightly in my view, alert to the changed terrain that the coalition may bring into being, an ‘audacious grab’ for the centre-right ground that shared considerable continuities with Blairite policies and which could leave the left looking very isolated. Others, notably Mehdi Hassan of the New Statesman, were more hopeful of a quick end to the coalition, calling it ‘a strategic disaster for the Lib Dems’.

Leadership election

How well Labour responds to the coalition will depend on a revitalisation of the Party’s politics and so far the leadership campaign has not revealed any clear direction either. At a hastily arranged hustings, a packed hall listened to the assorted Eds, Milibands, Burnham and Abbott set out their stalls and answer the predictable questions on PR, cuts and schools. While the greatest cheer during the opening statements came for Diane Abbot, a walking embodiment of tokenism in this election, enthusiasm for her waned as the debate proceeded, possibly reflecting the vacuity of Abbott’s politics. More encouragingly, both Milibands and Andy Burnham emphasised revitalisation of the party and its membership as key aims though as yet none as spelled out a convincing programme of democratic reform of Labour’s internal structure.

Showing some in Compass what might have been, John Cruddas rounded off proceedings with a forceful and at times powerful speech. His attack on the ‘sour, shrill, hopeless politics’ of attacking the poor and immigrants was a direct and timely counter to those arguing that Labour lost the election by not being tougher on immigration. Cruddas’ alternatives, of a thorough ‘1987-like’ policy review, a revitalisation of Labour’s values and culture and a politics based on progressive English nationalism, are clearly based on his energetic campaign against the BNP and his view that Labour has fallen into a ‘moral and intellectual coma’. Whatever the shortcomings of his politics, Cruddas showed a passion and vision that is lacking from much of the race so far and his absence from the contest clearly disappointed some in Compass.

However, Lawson’s recognition that ‘the time perhaps is just not right’ for his kind of politics was an appropriate acknowledgement of where Labour and the left currently is. Looking rather more like a rebel band that has just taken a thrashing at the hands of imperial stormtroopers, the Compass conference was nevertheless an energetic and welcome moment to reflect on the options facing the left.

‘A New Hope is Forged’, a report of the Compass conference on its own website, is here.

For news of the Labour leadership campaign and information about the candidates, go here.

The USA can’t commit to meaningful cuts in carbon emissions; China and other developing countries refuse to budge before industrialised countries have addressed their historic legacy of pollution; the small island, least developed and African nations insist on the need to do something to avert threats to their existence; and the Europeans make positive but ineffectual noises from the sidelines. Wonderful Copenhagen in 2009? Yes, but you could almost be talking about any climate negotiation from the past twenty years – Marrakech, The Hague, Bali, Kyoto or Rio.

The depressing fact is that ever since the first climate change agreement – the UN Framework Convention on Climate Change (UNFCCC) – back in Rio in 1992, the main contours of international climate politics have remained stubbornly in place. Back then, US President George Bush Senior established the family tradition by declaring that the USA would not commit to cuts in CO₂ emissions and that America’s way of life was not up for negotiation. Back then, China, Brazil and other leading developing countries argued that principles of justice meant that industrialised countries had to cut their emissions before anything was asked of developing nations.

Today, the same standoff between principles of justice, the realities of self-interest and the ticking clock of environmental damage, remains. Now, as in 1992, the result was an agreement with no legally enforceable limits on emissions, roundly condemned by all and sundry.

True, the UNFCCC eventually give birth to its deformed, half-dead offspring, the Kyoto Protocol which did contain binding commitments from some countries. As is well known, the USA signed but never ratified that treaty and the large developing countries signed only because they had to make no cuts at all. It thus left the two largest global polluters (the USA and China) outside its remit. Even its most ardent supporters, the northern European states, have shown an inability to reach even their modest targets and the Kyoto treaty contains no effective mechanism with which to punish those who fail their obligations.

So what of the fiasco that was Copenhagen? In recent years, important shifts have occurred in climate politics, which raised hopes that Copenhagen might have delivered some kind of step forward. The science around climate change is much more well established, despite the spoiling noises of the oil industry and their media mouthpieces like Fox News and the dreadful dailies, Telegraph and Mail. And there is more widespread political agreement that something should be done.

However, despite these shifts, the pace of political change, particularly in China and the USA, is slow, leaving the two unmoving objects of climate politics – US Congressional opposition and China’s veto power – in place. Without significant change here, progress at the international level will be very difficult.

The USA

It is true that climate politics in the US have changed a great deal since Bush Junior’s much-criticised exit from the Kyoto Protocol in 2001. The USA finally has a president who takes the issue seriously and has brought the country actively back to the centre of international negotiations.

Nevertheless, within the US political system, the President’s freedom to act on the international stage is highly constrained by the need for Congressional approval, something environmental critics and other countries seemingly fail to register. George Monbiot even managed to note the critical importance of the US Senate then simply wished it away, singling out President Obama as the person to blame for the failure in Copenhagen. Such critics speak as if the President could freely choose to sign up to whatever he wanted. He cannot. More accurately, whatever the US President agrees to has to be ratified by Congress, something that has not escaped past US Presidents, from Wilson to Clinton.

While the politics within Congress, including the Senate, have changed, and there are now serious discussions around a US climate change bill, there is still considerable opposition. Perhaps more crucially, even those in Congress who favour binding emission reductions baulk at the prospect of the US agreeing to them without China and other large developing countries committing to some action as well. This was the crux of the Copenhagen impasse.

China

Like the USA, China has belatedly begun to recognise that it has some interest in having cuts to carbon emissions, partly for reasons of energy security, partly because of the likely effect of climate change on its agricultural sector and coastal cities. However, this is tempered by the view that action against climate change, in the medium term, should be the sole responsibility of industrialised countries. There is some justice to this argument: climate change has largely been created by rich countries and in terms of per capita emissions they still dwarf China’s.

But there is also a heavy dose of self-interest in China’s objections. If oil is part of the architecture of the US economy, for China it is coal. No less than the US, China’s current stance is formed with its eyes on economic growth and nurturing its global power. There are many countries that pollute much less, and will suffer much more, than China, and are ill-served by its obstructionism.

On top of this, China’s opposition to any meaningful verification measures, without which no international treaty has ever been successful, served both to meet its aim of avoiding any verifiable binding commitments at all and to protect the regime against the ‘intrusion’ of independent scrutiny of its internal affairs, something the Communist Party has never accepted.

Together, these concerns put China in the extraordinary position, in the final hours of Copenhagen, of insisting that any significant targets on limiting temperature increases or emissions be removed from the final declaration. As reported by Mark Lynas not only did China not want to sign up to commitments for itself, it didn’t want other countries to make any commitments either, for fear it would lead to increased pressure down the line on China to adopt binding targets. If this remains part of China’s strategy, it is difficult to see any possibility of progress beyond a series of broad, voluntary, individual and unverifiable promises.

While criticism of the politics around climate change in the US is entirely apt, China’s stance is extremely risky. As well as using up scarce borrowed time, environmentally speaking, it may also squander an opportunity to make limited but real progress. In a dangerous game of chicken, China seems to calculate that if it continues to play hardball, the US will eventually give in.

But current political circumstances in the USA might be as good as they will get for some time: there is a President in favour of an international agreement on climate change and the Democrats control both houses of Congress. This will not last. In all likelihood the Democrat grip will be severely weakened by the Congressional mid-term elections later this year and a second Obama term is far from certain. Whatever the issues of justice, the developing countries may have missed an opportunity to strike a limited, pragmatic deal with the US in Copenhagen.

Lessons

For their part, the Labour government strove to make Copenhagen a success, and Ed Miliband is credited (though some wouldn’t use that word) with ensuring the final declaration was in fact agreed. Gordon Brown, too, has been forceful in arguing for large financial transfers to the less developed countries, though as ever, some argue more could and should be done. The weakness of the government’s position, and that of the EU more generally, is that their domestic performance on cutting emissions is so poor, particularly when placed against some of the grander statements that both the UK government and the EU have made. It will take more than gimmicky boiler scrappage schemes to convince other nations that the UK is serious about achieving the huge cuts in emissions that it says it wants to see.

Another lesson to take from Copenhagen is that it is high time for western NGOs and other commentators to recognise that their traditional understanding of international politics (in short and with little simplification, ‘industrialised and western = venal and bad; developing and rural = noble and good’) will no longer wash, if ever it did. The very grouping together of developing countries – in this of all issues – looks increasingly anachronistic, though it serves political purposes for various governments (allying with China provides leverage for the weakest states, siding with the least developed provides ideological and moral cover for China’s intransigence). Whether this alliance will prove tenable in the long term, remains to be seen. It is hard to see how China’s refusal to cut emissions can really benefit those who will be hit first and hardest by climate change.

But perhaps the key lesson, and what is weakest in the NGO-environmentalist criticism, is any attempt to reconcile the gulf between arguments of justice and the realities of international politics. It is no good acting as if the latter simply did not exist. Certainly, it is important that arguments about justice – whether couched in terms of historical responsibilities, or in terms of per capita CO₂ emissions – are made and reiterated. But an international emissions regime in which there is an even distribution of CO₂ emissions per head is simply not attainable in the near future. It is politically, not to mention physically, unachievable in the short term and possibly never this side of a technological revolution. Moreover, because of their volume, climate change cannot be curtailed without cuts in China’s rate of emissions, regardless of issues of justice. Nor is the international political landscape – multiple states acting in their own self-interest – likely to alter anytime soon.

As ever with progressive politics, what is needed, and what is most difficult to achieve, are steps that deliver tangible progress but which also begin an inevitably slow process of bridging the gulf between present day realities and environmentally effective and socially just outcomes. Some elements of this are beginning to feature in the negotiations – large transfers of financial resources to assist the poorest countries adapt to climate change are an essential first step, regardless of any other actions. An agreed goal for mitigating climate change – whether 2^oC or 1.5^oC – signifies some progress from 20 years ago, when a vague goal of avoiding ‘dangerous’ climate change is all countries would commit to.

Beyond this, further progress will probably require a division within the developing country block, and the larger, heavily polluting countries will have to give some ground while protecting the interests of the least developed and most vulnerable. In this context, developing countries’ insistence at Copenhagen on keeping the Kyoto deal in play, looks like a major mistake.

But the really serious work will involve looking for some limited common ground between China and the US. While something may be achievable through better handling of international negotiations than was displayed in Copenhagen, the real battles will be fought in the internal political environments of these two powers, as well as others. When states’ national interests are as deadlocked as they currently seem to be – when there is only limited agreement about ends, never mind means – then international cooperation will be similarly limited. It may take much more sustained campaigning on climate change, as well as wider economic and technological change, to change governments’ views of what is in their national interest.

It’s now over a year since the world’s financial system went into meltdown in the wake of the collapse of Lehman Brothers in September 2008. At the time, there was much talk of a transformation of the financial system, of a revolution in state regulation of private finance, the end of neoliberalism, even a transformation of politics. Yet, as the crisis passes and the world economy starts to make its way up the long slope from recession, these bolder claims have been pushed to one side.

Instead, the political consensus among governments of the leading economies focuses on much more modest ideas: a tweak to the regulatory architecture here, a word or two against bank bonuses there, a broad but toothless declaration in favour of international stability over there. And, shamefully, the weasel words of the private financial sector, briefly silenced in shock at the scale of the crisis, now re-emerge warning against any actions that might restrict competitiveness, of the need handsomely to reward ‘world class talent’, of the need to be vigilant against burdensome regulation. The job of dealing with their past failings meanwhile falls to ordinary tax payers, public service users and the newly unemployed.

In the UK, with a Tory government waiting menacingly around the corner, the debate is all about the burdens of the public sector, the need to cut government expenditure and the failings of the political class. And in the USA, the shell-shocked political right, which looked down, if not quite out, after twin blows from the collapse of the American economic model and the Democratic triumph of November 2008, has now regained its feet and rails against the expansion of ‘big government’.

It is in this context that it is worth reflecting on what we have been through, the underlying dynamics of our financial system that lie at the heart of the crisis and the political challenges we are left with.

Financial crises old and new

Although, quite rightly, the recent financial crisis dominates our thoughts, it should be remembered that financial crises of one kind or another are recurrent features of the economic landscape. Since World War Two the dominant view has been that the problems underlying the 1930s bank crisis and Depression have been addressed, and that governments and central banks know how to avoid them.

Yet we’ve had a succession of crises over the last 20 years, including the stock market crash of 1987 and recession of the early 1990s; a prolonged economic slow-down in Japan, from the early 1990s onwards; a financial crisis in Mexico in 1995, and then in Argentina; the Asian crisis of 1997, spreading from Thailand to Malaysia, South Korea and Indonesia; a crisis in Russia in 1998; and, in 2001-2, another crisis in Argentina. In addition, we have seen recessions in the US and other leading countries in 1981-2 and 1990-2; the debt crisis in Latin America in the 1980s; and more recently the dot com bubble and burst at the turn of the century followed by another recession in the US in 2001.

Indeed, you could hardly say that financial stability has been a hallmark of recent economic history. And, as Barry Winter rightly points out in his article ‘Lies, Hubris and Neoliberalism‘, at every juncture before a financial crisis we have had displays of unguarded hubris – pronouncements on the underlying strength of the economy and assurances that market fundamentals are sound – not least, Gordon Brown’s too-often repeated claim that new Labour had abolished boom and bust.

Two views of financial markets

As the economist George Cooper argues in his excellent short book The Origin of Financial Crises, mainstream economics contains, broadly, two contrasting views about how financial markets work. Here, I am primarily referring to asset markets (stocks, shares, property, etc) and debt markets, and the relationship between them, albeit in very simplified terms.

First, we have to remember that in any sophisticated economy, and certainly any modern industrial economy, credit plays a crucial and central role in enabling a much higher level of economic activity than would be possible if people and businesses only spent and invested what they already owned. An economy without credit would provide a much lower standard of living than one with credit, but this also implies that an economy with a credit industry needs to be regulated in some way.

Traditionally, what banks are prepared to lend to individuals and firms is based on the collateral (assets) that the borrower owns and the borrower’s likely return on investments – less collateral and higher risk mean higher interest rates, and vice versa.

Recent problems centre around this process because it means lenders must estimate the value of assets held by borrowers, and the prospects for investments or purchases, which in turn are also based on expectations about asset prices in the future. This is particularly clear in the case of mortgages, which we’ll come back to.

The first view of this process, the dominant one in economics, policy making and banking for many years, is that asset prices – the prices of stocks, shares, property, etc – are a true reflection of their value; that is, that asset markets are ‘efficient’ mechanisms. If the stock market is going up, that is because businesses are worth more, will be generating more income for shareholders, and thus are a reflection of the underlying strength of the economy.

On this view stock and share prices, property prices and company balance sheets will all be taken by banks and other financial institutions as sound evidence that lending can be increased. Generalised across the economy, it supports the view that expanding levels of debt – held by businesses and individuals – are ok, if asset prices are going up, because they are taken as an indication of the underlying strength of the economy.

However, the alternative view, one held by Keynes and the economist Hyman Minsky (who I’ll come back to), among others, is that asset markets are not efficient, that they operate in a quite different way to markets in goods and services, and in particular that they generate self-reinforcing but alternating cycles of growth and contraction.

On this view, in the boom phase, an increase in asset prices leads to increased lending, which stimulates the asset market, which in turn justifies increased lending, and so on. However, in this kind of self-reinforcing cycle, asset price increases are not simply a reflection of the state of the economy. They are themselves inflated by increases in credit and as such become a cause of economic growth, generating a false picture of overall health in the economy and of the credit-worthiness of borrowers.

What inevitably happens is that a self-reinforcing boom becomes a self-reinforcing crisis. The economy ‘flips’ (the trigger varies in different crises), confidence in borrowers decreases leading to a contraction of lending, forcing sales of assets to pay off inflated loans, leading to a further decrease in asset prices, leading to further loss of confidence … and so on.

Minsky moments

Named after Hyman Minsky, a post-Keynesian American economist, Minsky moments are not an economist’s version of Perry Como, but the points at which economies turn from boom to bust. Minsky was relatively neglected by policy makers and bankers during the years of neoliberal dominance, as indeed was Keynes’ view about the inherent instability of financial markets. Yet, back in 1974 Minsky noted:

‘A fundamental characteristic of our economy, is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.’

It follows from this is that financial crises – even in the view of these fairly conventional economists – are not driven by individual misbehaviour, greed, exuberance, or the absence of enough women on the trading floors. Instead, they are, in George Cooper’s words, ‘hard wired into the system’. (It’s not that the behaviour of traders is unimportant just, in his view, that the problem is more fundamental than that.) ‘Let’s be honest,’ Cooper wrote, ‘a static stable equilibrium has never been observed anywhere in financial markets.’

Hype springs eternal

The other important thing to note is that most policy makers, central bankers, politicians and financiers have not held this latter view of inherent financial instability – which carries with it a necessity for financial authorities to closely monitor and control the expansion and contraction of credit. They have instead held the view that asset and debt markets are efficient and tending towards equilibrium.

It is only because of this that we can understand how, shortly before every single financial crisis, we hear those hubristic declarations of economic health. Thus, before the dot com bubble of the late 1990s turned to bust we were told that the boom was a sign of a fundamentally new kind of economy based on perpetual growth. Similarly, in 2005-07 we were told that houses weren’t over priced, and that record levels in stock market prices were a reflection of sound fundamentals (and sound management) of the economy. And, in August 2007, we were told by the US Treasury Secretary that problems in the housing market had ‘largely been contained’.

Even as late as summer 2008, Bill Emmot, former editor of The Economist, wrote in The Guardian that this wasn’t a crisis, ‘it’s just a kerfuffle’. As Nobel Prize-winning economist Paul Krugman noted dryly, in credit-fuelled booms, ‘hype springs eternal’.

The unfolding crisis

So how did the crisis unfold? As we know its roots lie in the sub-prime mortgage market in the US.

In the late 1990s, the US and other leading economies experienced a boom and then a crash in investment in internet-based businesses, the so-called ‘dot com bubble’. In response to the downturn which followed the dot com bust in 2000, and to limit the economic shockwaves from the 11 September 2001 attacks on New York, the US central bank, the Federal Reserve, aggressively cut interest rates to pull the US economy out of recession. On the face of it this seemed to work, as growth in the US economy quickly resumed.

However, the policy pursued by Federal Reserve chairman Alan Greenspan allowed large increases in the level of credit, most notably in the US housing market, and the dot com bust was followed by a housing boom. The end of the housing boom, from 2007 onwards, had a devastating impact – a world-wide ‘credit crunch’, a financial crisis which threatened the existence of some of the world’s biggest banks, and a deep recession. The reasons for this lie in the particular way banks handled lending.

Banks and other lending institutions had been lending increasing amounts to homebuyers, stimulating demand for houses and pushing up prices, leading to further lending – precisely the kind of asset boom described above. Low interest rates meant this lending spread from relatively lower-risk customers to ‘sub-prime’ borrowers, mainly people on lower incomes, many of whom were offered short-term, cut-price interest rates on mortgages as an incentive to sign up.

For banks and other lenders, such mortgages were inherently risky but this risk was mitigated by low interest rates and what seemed to be sustained economic growth. In addition, they protected themselves against this risk by selling mortgages on to other investors (banks, investment institutions, and so on). This process of ‘securitising’ loans, selling loans to other players in the financial sector, ensured that the risky loans were spread throughout the financial system.

In the face of increasing signs of inflation in the US, and concerns that some sectors such as housing were overheating, the Federal Reserve began to increase interest rates, from one per cent in 2004 to more than five per cent in 2006. This affected borrowers in many sectors but particularly those with sub-prime mortgages who saw their monthly payments rise rapidly. Many were forced to default, and because ownership of the loans was now spread so widely, the effects of mortgage defaults were felt by institutions that were, on the face of it, far removed from the US housing market.

Furthermore, because of the complexity of the financial instruments that had been created, no one was clear how much ‘bad debt’ was in the system as a whole and how much was held by each bank. Banks had to make provision to cover their own bad debts and were increasingly reluctant to lend to other banks because they weren’t sure how exposed they were. As a result credit rapidly dried up.

First effects

The first effects of the crisis began to show in summer 2007 when New Century Financial, one of the main sub-prime lenders in the USA, went bankrupt. The first effects outside the US showed when French bank ParisBas had problems. In response, central banks in Europe, USA, Canada and Japan began to pump more money into the system as banks became increasingly nervous about lending to each other.

In the UK, the run on Northern Rock in September 2007 exemplified some of the problems to come as uncertainty about the bank’s exposure to bad loans prompted savers to withdraw their money, fearful that the bank would collapse. At the same time, US banks started to reveal the extent of their exposure to bad debt – Merrill Lynch, for example, owned nearly $8bn in bad debt.

By winter 2007, the inter-bank lending rate (the interest rate at which banks lend to each other to fund their day to day transactions) reached then record levels, a particular problem in the UK economy given the UK banks’ reliance on wholesale lending markets (day to day borrowing from other banks) which grew from zero in 2001 to over £650bn in 2007. The end result for Northern Rock was nationalisation, in spring 2008, and in the USA the investment bank Bear Sterns was absorbed by JP Morgan Chase in a deal brokered by the Federal Reserve.

Despite these signs of restructuring, the underlying problems of the mortgage market remained. In summer 2008, UK house prices fell for the first time in 12 years and the US government was forced to bail out two of its biggest mortgage lenders, Fannie Mae and Freddie Mac, who together owned up to $5 trillion in home loans. In September 2008, amid increasing turmoil, Merrill Lynch was taken over by Bank of America and AIG Insurance was kept afloat by a rescue package from the US Federal Reserve.

However, that was also the month the US government declared it would not step in to save the investment bank Lehman Brothers which was forced to file for bankruptcy on September 15th  – the biggest casualty of the credit crunch so far. Shortly afterwards, the US government’s US$700bn package to rescue the financial system – its largest intervention in the markets since the 1930s – was held up by Congress, causing worldwide panic. The crisis spread rapidly to Europe, with a collapse in Iceland’s banking system and desperate efforts to shore up banks in other countries, including the UK, Germany and Ireland.

Throughout autumn 2008 we saw a succession of government and central bank interventions of increasing magnitude in the USA, UK, Iceland, Ireland, Germany, and elsewhere; a partial nationalisation of some of the UK’s leading banks; and interest rates slashed in an effort to stimulate inter-bank lending. By winter 2008, the US and Eurozone officially went into recession and the UK followed in January 2009. Even China saw a sharp decline in exports and growth.

Responses and lessons

The G20 meeting in April 2009 managed to reach some agreement about stimulating the world economy, and some commitments (largely lived up to so far) not to create further problems through trade protectionism and the like. However, more far-reaching proposals for financial regulation have been harder to achieve. Ongoing challenges to the USA’s world leadership (see my article, Superpower Headaches), divisions between Europe and the US, signs of recovery and a re-activated financial lobby have all curtailed some of the more far-flung rhetoric of March-April 2009.

Yet, the underlying risk of repeated boom-bust cycles has by no means gone away. The basic economic model, especially in the UK where the City has long dominated economic policy, remains susceptible to the dynamics of instability identified by Keynes and Minsky long ago. Most of the signals from the UK government point towards a reconstruction of the existing system, with limited changes, rather than fundamental reform. Even the nationalised banks are being packaged up to resume their former role, as if nothing had gone wrong.

Chancellor Alastair Darling even stated, in one of his more extraordinary moments, that nothing was fundamentally wrong with the system, we just need ‘better people’ in the boardrooms. If anything could demonstrate the paucity of vision, acquiescence with the status quo, and absence of radical ambition at the top of the Labour Party, this is it. ‘Never let a good crisis go to waste,’ Obama’s chief of staff, Rahm Emanuel is reported to have advised. It feels uncomfortably like we already have.

This is an updated version of Will Brown’s talk at the ILP’s round table seminar, Crunch Times: Politics and the Crisis. To read a report of that event and link to other contributions click here.
To read other articles on the economic crisis, click here.

The vitriolic healthcare debate in the US and ongoing economic problems may dominate President Obama’s current agenda but the first nine months of this administration have also put into sharp focus an exceptionally difficult range of US foreign policy problems.

The inauguration of Barack Obama signalled for many in America and around the world a sharp break with the Bush administration. For the left of centre, the Bush years seemed at times almost a caricature of the ugly American bogeyman. Yet even for more mainstream politicians among America’s traditional allies the Bush policies on Iraq, torture, climate change and human rights seemed designed to test old allegiances to the limit.

The ecstatic crowds that greeted Obama in Berlin in during the 2008 election campaign, and more recently in Prague (and to a lesser extent in Britain) in 2009, signalled a hope at least that America could once again be if not an out and out multilateralist, then at least a more benign hegemon.

Declaring ‘America is ready to lead once more’ Obama’s inauguration, like his election, was recognition that the country’s position in the international system was in question like never before in recent history. A series of policies, whether enacted or signalled, were designed to chart a different path from his predecessor.

Yet a careful consideration of some of the most obvious foreign policy challenges facing America, reveals enormous limitations on Obama’s ability to reshape America’s position in the world and its relationships with other major powers.

Western Europe
Even among the countries where the USA’s international ties are the strongest, Obama has not had an easy ride. Certainly the change of direction has done much to reassure western leaders that the Bush administration’s unilateralism has passed.

However, the fact that the financial crisis was ‘made in America’ has severely weakened the USA’s ability (at least in the short term) to claim its economic model is the dominant one. Elements of regulation agreed at the G20 summit in April, and the creation of additional international credit through the IMF’s Special Drawing Rights, both signal an attempt by some in western Europe to push for changes in capitalist regulation at America’s moment of weakness. Divisions within the G20 over the extent and methods of financial regulation may continue to be a source of tension.

This is not limited to the economic sphere. The unwillingness of NATO allies to commit more troops to Afghanistan continues to frustrate US attempts to make progress on that front. Disagreements about the use of force outside of NATO’s area of operations have been a persistent source of tensions and the Obama Presidency won’t resolve these easily.

Iraq
Obama’s timetable for withdrawal from Iraq modestly reinforces a policy direction already adopted, if very reluctantly, in the later Bush years. Yet even with the best of intentions, a pull-out is conditional on some level of political stability in the country and that may well become more difficult the closer to the end game we get. Recent increases in violence indicate that the Iraqi terrorists and the Al-Qaeda threat may still pose severe problems.

The Afghan-Pakistan problem
US policy has increasingly  come to a belated recognition of the intertwined nature of the problems that surround US attempts to secure political stability in, and ultimately some kind of exit from Afghanistan.

If routing the Taliban in retaliation for the 9/11 attacks was initially successful, the subsequent operations have been anything but. The re-established ‘warlord’ economies based around poppy production and rampant corruption in government have only partially been offset by the creation of a nascent Afghan army. Extensive election fraud, low turnout and mounting casualties all pose increasingly difficult questions about what an acceptable solution in Afghanistan might be.

Yet the unwillingness or inability to commit more ground troops (particularly by NATO allies and in no small part because of Iraq) and the lack of development, have been compounded by gathering instability across the border. Not only has Pakistan become a source of support for the Taliban in Afghanistan, but the Taliban is also posing a growing threat to Pakistan’s fragile government. The threat of an ‘Iran-style’ revolution is now firmly on the American policy agenda and the potential for Pakistan’s nuclear arsenal to fall into Islamist hands is far from an idle worry.

Iran, Russia and proliferation
An increasingly hostile relationship developed with both Iran and Russia during the second Bush term. Obama’s early policy indicates an attempt to repair relations with Russia in an effort to strengthen the USA’s hand in dealing with Iran.

The basic objection to Iran’s nuclear ambitions have remained in place and are likely to do so – the prospect of an nuclear armed state on the Persian Gulf oil supply lines, and within striking distance of Israel, is the stuff of US strategic nightmares. Tougher UN Security Council action against Iran has long been hampered by Russian and Chinese objections.

Conciliatory moves towards Russia (questions over the future of the controversial eastern Europe missile defence shield, renewal of strategic arms limitation talks) are intended to entice greater co-operation. The prospect of more direct negotiations with Iran also are an attempt to open the door to a non-military solution.

However, ‘tough-minded diplomacy’ – claimed to be the touchstone of the new administration – requires others to be diplomatic in return. The tough stance by the Iranian regime after testing domestic opposition doesn’t bode well. The sense of US weakness on this issue, and the very real obstacles in the way of military action against Iran, limit America’s diplomatic hand as well. As if to reinforce the point, on the very day Obama held aloft the goal of a nuclear-free world, North Korea tested the latest version of its missile technology and ramped up its nuclear testing programme.

Such signs of US weakness may be a welcome change from the early Bush years even if, at the time of the Iraq invasion, many on the left as well as the neocon right severely over-estimated the extent of the USA’s ability to alter the world in its own interests (as opposed to its ability just to do harm). But a world shaped by the interests of current Russian or Chinese governments, much less an Iranian one, will be hardly more palatable than one bestrode by an American colossus.

It is ironic that just when the US gets a president seemingly intent on fashioning more progressive international outcomes, America is less able to achieve them.