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Entries in Foreign Policy (5)

Monday
Jul052010

Africa in 2010

We are not African specialists. If we want information about political risk South of the Sahara or in the Horn of Africa, we will turn to one of our clients, Pasco Risk Management, based in South Africa, or perhaps to a political contact or two of our own here in London or in East or West Africa.

But what we do understand is how the West has viewed and is viewing its position in Africa and the effect that recent economic problems in both the US (where instability persists) and Europe (which is deeply troubled) are having on the public acceptability of its forward engagement on the Continent.

There is a push and there is a pull in this. Both push and pull are driven by economic considerations that are beginning to overwhelm the 'idealism' that often gave cover to 'realpolitik' in the wake of the internal liberation of South Africa and derived from rage at examples of genocide and famine elsewhere.

The issues are complex and this is a note and not a paper. You could do worse than read Pasco's own on-the-ground assessments of the situation from an African perspective.

We have two sets of comment to make - first, about the very limited weight that progressive values now have for a Western policy that is definitely on the defensive because of resource constraints and, second, the limited ability of the West to effect its aims through its pivotal states strategy.

Pressures on the Humanitarian Impulse

Progressive and humanitarian drivers for Western intervention should not be regarded overly cynically. They were based on an ideological commitment within New Labour and this derived from the personal position of individuals whose political teeth had been cut on the anti-apartheid movement.

This British perspective would not have mattered in itself except that this progressivism 'worked' well with other drivers - Southern Baptist solidarity with Africa in Black America and a more general liberal determination in Europe that a colonial mentality must be replaced with a humanitarian one.

The high point of this general attitude was represented by liberals like Blair and Kouchner in France and to a lesser extent by Fischer in Germany and the Clinton administration. Adaptation to the opportunity presented for intervention by the Al-Qaeda strike on America was a natural one.

Unfortunately, after the initial success in Sierra Leone, liberal interventionism has undoubtedly been an expensive failure in the Middle East and West Asia while African states have increasingly resented the neo-colonial implications of what is essentially a centre-left imposition of values from the North Atlantic.

It is probable, though, that the policy could have struggled on so long as the electorates of the West were sentimentally directed to giving aid and assistance to their 'little brown brothers' - but that all changed with the near collapse of the complex economic system that underpinned Western largesse.

Three Realities

Three factors have now pushed their way to the head of the queue for Western policymakers: migration; growing disillusionment with the effects on the ground of intervention and of NGO engagement; and simple lack of hard cash and credit to disburse.

In each of these cases, the economic crisis in the West has played its role, taking the moral high ground away from the liberal progressives and returning it to those who question why scarce resources should be redirected to regimes that are now perceived to be capable of looking after themselves.

Migration is the most interesting because, although threats to the system from the nationalist Right have not emerged as serious electoral challenges except in particular conditions, the racist and nationalist underground is undoubtedly growing in strength and self-confidence.

Most migration and most terrorism is actually internally generated from within the West but, just as frightened Americans fear the flow of impoverished Mexicans from the South, so Europeans are unnerved by the flow of Africans into their cities.

The original progressive theory about this was that investment by Europe in Africa would create opportunities for Africans and the migrants would no longer need to flow North. To this was added the theory that Africans merely joined Asians, Arabs and Jews as the latest positive contributors to culture.

This was optimistic because, for many Africans, the poorest conditions in a European city were always going to be potentially more secure than conditions at home and the migrants were often 'post-modern': deracinated individuals rather than entrepreneurial pioneers for village communities.

The paradox of tighter border controls is that the criminal and a-social or desperate and trafficked elements are more likely to get through than families on the move and there has been a determined attempt by liberals to avoid an analysis of this lest it come up with 'racist' results.

But a great deal of the responsibility for migration into Europe lies with the greed and rapacity of Europeans themselves and Africans, with access to the internet as much as anyone else, have been educating themselves about radical interpretations of their own history.

Notoriously, Spanish industrialised fishing fleets have been raping the traditional fishing grounds of West Africa while the scale of oil pollution in some areas of the Nigerian Delta (greater than in the Gulf of Louisiana as we write) has been having similar effects on populations there for half a decade.

The Effects of the Crunch

There was always a faction of the liberal intelligentsiya that was relaxed about migration, seeing it as creating constant economic growth under globalisation. Another faction was ideologically perfectly happy to see Africans drive down Western wage rates as a form of global redistributionism.

The credit crunch of 2008 has pulled the rug out from both of these very influential factions (trickle down and redistributionist both) while the consequences of the crisis have affected the West and Africa equally in their relations with each other.

Inward migration from Africa was now a potential political threat (especially when overlaid with cultural and identity fears). The European electorate was not going to tolerate increases in expenditure overseas, to deal with the effects of recession in Africa, at a time of major public sector job losses.

Interestingly, and to widespread approval, Prime Minister Cameron in the UK has ring-fenced international development funds alongside health and education (helping to force even more draconian cuts elsewhere) but very much on the basis of more effective targeting and accountability.

What he was doing, as a 'soft' conservative himself, was taking aid off the political agenda for cuts until it needed to go back on again but also removing international development from its Blairite position as an integrated part of foreign policy and defence.

The days of doling out cash for political or strategic purposes are now over for the British and its humanitarian focus has been detached from grand policy in order to be treated as a moral imperative in its own right. If things get really bad in the UK, it will be cut because it will now be easier to cut.

Ressentiment

Quite separate from all this, there has been a growing distrust of NGOs and Governments as suppliers of aid. This is not coming from within the West (where critics have easily been pigeon-holed as right-wing miserabilists) but is the leaching back into the developed world of emerging world resentment.

Irritation with aid being used to patronise Africans alongside stories of waste, failure and of the 'fat cats' who appear as salaried do-gooders (from the perspective of some observers) merges with concerns about the tendency to use NGOs as soft power fodder in Iraq, Afghanistan and Somalia.

The criticisms may not be wholly fair (but nor are they wholly unfair either) yet the suspicion grows that aid is a job creation scheme for otherwise unemployable Western graduates and for scions of the traditional middle class. Many Africans see this as District Commissioners by the back door.

Western policy towards Africa at this level is thus a confused mess, reminiscent of the patronising involvement of young EU officials as inefficient satraps in Eastern Europe as the communist bloc fell apart. Disillusionment spreads, then as now, back from field workers into the heartland.

Of course, the issues are not cut and dried. Despite the values agenda, the US in particular, including private sector philanthropists, have all undertaken major programmes affecting healthcare and life chances (especially for women) in a highly positive way.

But the impression remains for many in the West that, just as they are fearing for their jobs and homes, substantial resources should not be directed to supporting the middle classes of other countries when it is quite clear the help is not always welcomed.

However, it is important to note that there is no movement to end aid but only a growing indifference to claims of the need for aid and intervention that makes it much more difficult for political interests to direct public funds towards foreign policy or security ends.

Strains

So, if we see a drift of public interest (World Cup notwithstanding) away from Africa and African affairs towards a stance of relative unconcern (there is no animus in this towards Africa at all), economic pressures also limit what the West can do in terms of hard power.

In one sense, the Western public has grown up and the shifts show maturity and generational shift. Younger politicians do not have anti-apartheid activism and resentment of imperialism to worry about and can escape guilt as Middle Europeans are now escaping from Holocaust guilt.

African music is now established in the world music repertoire, African writers sit comfortably alongside Latin American magical realists on the shelves, Ghana was supported by many white British in the World Cup and racism is psychologically inconceivable as a concept to middle class kids under 30.

But, self-evidently there are less resources to play with - in Europe, where the engine of European growth, Germany, has found itself bank of last resort to economically maladjusted smaller partners in the European Union, and in the UK which is running not to face its own crisis in the next year.

In the US, Obama will not be thanked if he spends a great deal on Africa rather than on the Gulf Coast, now hit by two successive disasters in Katrina and the BP oil spill, while US unemployment remains high and may even be rising again.

Finally, the costs of Iraq and Afghanistan are just not going to go away. Afghanistan is a true disaster, involving payments not only on military campaigns but to a corrupt and corrupting puppet regime and major subventions to Pakistan simply to keep its military on side and its economy from collapsing.

Pivotal States

US strategy in Africa (as pointed out by Pasco) was based on containing insurgency, controlling energy supplies (and we add the free access to mineral reserves vital for strategic purposes) and countering Chinese and Indian influence that might remove the continent from the Western to the Eastern sphere.

The methodology for control was based on 'pivotal states' theory - i.e. supporting strong stable states in each major sub-zone and encouraging them to go out and police the surrounding areas, presumably at their own expense but with Western aid and in alignment with Western values.

Placing the unusual Uganda/Rwanda complex to one side, the original postulated key states were Nigeria, Ethiopia and South Africa and all were expected, under Western guidance, to adopt liberal anti-corruption regimes and to manage their sub-region - later in an African Union context.

All three have been disappointments. The surrounding countries have gone their own way willy-nilly as either failed states or as independent countries following their own paths - they will go with the highest bidder, increasingly China. And, of course, Congo remains a great yawning gap in the system.

Nigeria has remained such an anxiety in terms of its long term stability that the US has now switched its attention to Ghana. At one point, before its recent troubles, Gazprom looked as if it would be taking a strategic position for Russia with the help of Libya and Italy by capturing control of Nigerian gas.

Ethiopia is the strongest state (perhaps) but at the cost of any programme of liberalisation, despite constant Western pressure, wheedling and largely idle threats.

However its intervention in Somalia was abortive - the African Union contingent sit in Mogadishu like rabbits in the streaming headlights of the insurgents.

South Africa seems to have been treated by Western liberals as if it owed them something for their support against apartheid. It didn't and it doesn't.

The peaceful transition to democracy was a remarkable achievement but its very tranquillity and compromise meant that serious issues of economic inequity have not been handled. Too many powerful interests had needed to be mollified. Now, as Pasco reports, the ANC is stirring again.

Capital accumulation by the new black elite was meant to result in trickle-down but the global credit crisis has put paid to that. An expectation of the West that South Africa would put scarce resources into a neo-colonial liberal intervention into Zimbabwe was thus disappointed and quite rightly so.

The Meaning of the US Presence

Africom, meanwhile, is now basically an anti-insurgency operation operating from enclaves which it controls because deals have been struck - Djibouti is effectively a grant from the rump of the old French Empire. It does dirty deeds in a war between the US and fanatics that passes most Africans by.

The US is now engaged in a process of constant and often very expensive negotiation that often comes down to little more than the containment of sworn enemies and the maintenance of the sea lanes that take oil and gas from the Gulf and West Africa to Western refineries and holding installations.

The lesson of all this is that there is no 'Africa' except in the imperial imagination of Westerners brought up on the carve-up at the Berlin Conference. There are many Africas - sovereign states with sovereign interests who still need to stabilise themselves before they start stabilising their neighbours.

A nightmare for the West might be a serious political collapse in a key state or a massive humanitarian crisis in a small state that the Chinese relieve faster and more efficiently than it can. The US and UK scuttled from dabbling in the recent Ethiopian elections for fear of precipitating such a problem.

This state of affairs - growing African intransigence at Western interference and Western economic retrenchment - will not last forever. Each of the pivotal states remain a potential partner of the West according to the original theory but the real aims of any African country must be a different from 'ours'.

South Africa can look across to Brazil and envy its inclusion alongside India, Russia and China as one of the BRICS. Nigeria and Ethiopia, too, would not want less status in the world than Australia. It might take thirty years but these three countries will want parity not patronage.

[These views are entirely those of TPPR and are not to be construed as those of Pasco Risk. For access to Pasco Risk featured articles now and in the future, go to their website]

Tuesday
May252010

The Intentions Of Government

This note does not relate to the Queen's Speech today but to the intentions of the new Coalition Government - what it would do if it had the power and resources. It follows directly on from the last note on the 'ideology' (such as it is) underlying the new Coalition.

Limitations

The Coalition Government admits from the beginning that it has two serious constraints on delivery:

  • the budget deficit, the reduction of which now appears to be somewhat of a race against time as the markets begin to wobble seriously over the state of the Eurozone; and,
  • its full acceptance of devolved powers to Northern Ireland, Scotland and Wales which means that many of its policies are applicable only to England.

If it meets its stated aim of decentralising executive power radically, the Coalition Government will also lose, over time, some of its control over the State's capacity to enforce action domestically (much of which power has been theoretical in any case).

The Nudge Approach

This helps to explain its overt appeal to the use of 'behaviourial economics and social psychology' in its Programme for Government, the so-called 'nudge' approach to managing the population.

This is most clearly expressed in the consumer choice and public health areas where Government will 'encourage behaviour change to help people live healthier lives'.

No mention is made here of the real problem - the lack of action to deal with the choices offered to people by manufacturers and retailers. The 'innovative techniques' are designed for us to take action, not the businesses who sell to us.

We have warned already that this belief in the efficacy of the new cognitive sciences in public administration is probably a case of 'clutching at straws'.

The public are probably not as easy to manipulate as the new wave of policymakers think but this is what the new Coalition believes is possible and so, efficacious or not, it will be attempted.

A Solid Popular Programme

As for the programme itself, most of it, perhaps two thirds of it, is unexceptionable by any standards - almost motherhood-and-apple pie stuff that expresses a very English irritation with an overweening State recently led by people who think we respond well to petty regulation.

This Government gets it right on the need for banking regulation, on taxation, on economic re-balancing, on government transparency, on international development, on social care and disability, on transport, and on consumer protection (subject to the caveat on the excessive faith on untested soft science)

It certainly gets it very right on deficit reduction, immigration, civil liberties and decentralisation.

There is no immediate quibble on Europe, political reform, policy on the NHS (though with caution on the detail), on environment, food and rural affairs, on crime and policing or justice and on defence (as a general principle rather than in regard to the political classes' obsession with Trident).

We are not qualified to write on the controversial education and universities policies at this early stage and the 'social action' programme, based on civil society assumptions that are far from proven, should perhaps be passed over in silence for the moment.

But where does the Government seem to have intentions that run counter not only to deficit reduction but to the limited state that it proposes? Where may we see strains as libertarians come up against those who still cling to Blairite glamour or Churchillian 'folie de grandeur'? Probably in four areas.

Government As Beacon of Culture

There is still a belief that Government has a role to play in 'excellence' in culture, media and sport. You do not have to be an avid reader of Friedrich Nietzsche to question whether Government can have anything to do with excellence, certainly not in matters of the imagination.

The promotion of 'excellence' has often involved massive transfers of funds from private budgets. It is arguable that personal choice is best when decisions are to made about art, games and the acquisition of information. Watching excellence is a lot less healthy than kicking a ball around a field.

What we appear to have here is an expensive continuation of public subsidy for a middle class elite that just happens to have a hold over the public policy agenda. This concession to Blairismo amongst radical libertarians is puzzling to say the least.

'climate change is one of the gravest threats we face'

In fact, graver threats may lie in serious economic dislocation and collapse of social cohesion. Government will be doing some very good things in the detail of environmental policy but it seems to be hinting that we will continue to be 'nudged' into environmentalist hysteria.

The question here is whether the new Government can resist the temptation to follow 'Blairismo' in using hype and fear as an instrument of policy.

Or whether we will see a pseudo-internationalism being promoted to effect a relatively few and sensible measures to deal with primarily national concerns - sustainability and food and energy security.

The Programme Statement suggests that hype has been locked into the mental model of the new Government from an earlier era and it may not be easily dislodged. Fortunately, the slashing of marketing and advertising budgets removes one of its tools at a stroke ...

Hidden Petards For Social Cohesion

The emphasis on the family definitely comes from the Conservative side of the equation but it begs many questions about what precisely a family is in the modern age, while the welfare issue is somewhat skated over in generalities that imply a toughness that is not fully stated.

We might also raise questions about what the equalities agenda really means but this is a complex ideological area and we can leave that to another time. The implication of the Programme is that the Coalition Government has not abandoned the progressive ideology of its predecessors.

In all these cases, what we are really talking about is an attempt to maintain social cohesion through a claim of strategies of inclusion and of support for social institutions in a back-handed compliment to the previous regime.

But it is clear that the previous Administration never had a cogent plan to deal with the budgetary effects of the major social changes created by consumer choice and media-led social liberalism. It made full employment into a mantra, did nothing and the deficit just grew and grew.

Everything now depends on what precisely the new Administration actually means by family and by equality but there is no incentive for Liberal Democrats and Conservatives to rock the boat by having that dialogue now, certainly not in public.

The definitions in the head of the politicians, the ones in the expectation of different constituencies and the ones required by society may take some time to reconcile. Eventually, decisions are going to have to be taken and then, and only then, will we know if this Coalition can stick.

This is the area in which the State comes up hard against issues of social cohesion since most people at most times are not concerned with the planet or arts policy or even foreign policy but with basic survival.

The implication remains that, for some people at the margins of society, the State will be patronising you if you are not conventional, attempting to 'nudge' you into normality and giving preference to others because of some attribute like gender or colour despite your talents.

If you add to the pot a commitment to protect pensions and even improve the care system (a highly laudable social aim), then the financial and electoral pressure to push the young into one place in order to protect baby-boomers as they age in another may store up some serious social order problems.

This is the ethos of the progressive authoritarianism of the previous administration but it is now combined with a determined and necessary deficit reduction programme where welfare (far more than Trident) is the biggest target for significant 'savings'.

'Folie de Grandeur'

On foreign policy and security, there is no point in going over old ground (just track through our postings) but the Coalition wants to be a player in the world within the old Atlantic system and this is a very expensive choice to make (especially when we add Trident to the mix).

Alongside this is another inheritance from the previous regime in which a particular anti-terrorist definition of national security (as opposed to one based on national sustainability) is stated to permit 'action to tackle terrorism, and its causes, at home and abroad'.

Put this determination to be a player together with the threats agenda of some of the security establishment and you see the potential for a continued drain on the limited resources of the State in order to allow politicians to carry on their game of playing the role of eighteenth century statesmen.

The Pressures

This basically sound and popular Coalition Programme contains its own inner contradictions. Apart from the sheer lack of easy money and the over-emphasis on soft science that is still in its infancy to offset a deliberate transfer of powers to lower levels in society, there are troubles brewing.

The Coalition Government is a creature of history as are we all and the burden of big culture, big rhetoric and being a big global player on limited budgets will place further pressure on the place where the deficit can be dealt with most decisively - welfare.

On top of the apparent necessity to deal with welfare costs lies an ill-formed cobbled together ideology surrounding the idea of society that tries to reconcile libertarians in both Coalition parties with a form of communitarianism that places direct pressure on individual choice and rights.

All this is taking place in a context in which an aging population of self-centred individualists is expecting the young to pay for its old age as a matter of right despite leaving their world in a bit of a mess.

We are in an extended honeymoon period for this Government because it is cutting the fat left by New Labour but the next round of cuts is likely to be brutal and to have aspects that imply class or even generational war. Fairness will dictate some pain for the middle classes to make it acceptable.

Friday
Nov272009

The Dubai Aftershock - London's Vulnerability

If you get a major earthquake, you should expect aftershocks. The collapse of Lehman Brothers was an earthquake for the global financial system. What is happening in the Gulf now is an aftershock.

The Problem of Dubai World

The trigger for the latest crisis, which has seen major banking share price falls across the world, is not a crash as such but a rescheduling of debt. Dubai World has $59bn of debt (the bulk of Dubai's $80bn debt) and repayments to all lenders are being put on 'standstill' for six months.

If something is state-backed, especially when the state involved (Dubai) is understood by the market to be backed by a much wealthier energy-rich State (Abu Dhabi) within a sovereign confederation, it is supposed to be copper-bottomed.

Dubai World's delay to the repayment of some of its debt not only suggests that Dubai itself may be in trouble. It raises questions about the extent to which Abu Dhabi will come to the rescue not only of its sister state but of the many banking, property and construction interests who are in over their heads.

The Gulf Financial System

Markets are built on confidence. The financial system that had been propping up this deck of cards in the desert had assumed that the Gulf was playing to the same rules as Wall Street, the City of London and all the other financial centres that keep capitalism chugging along for good or ill.

But, whereas the rest of the capitalist world has a semblance of democratic and quasi-competent bureaucratic scrutiny that keeps everyone within certain 'rules', the Gulf is late to the game. Its policies are still driven by dynastic whim and an uncertain professionalism amongst technocrats and regulators.

Old Middle East hands have always been aware of uncertainty of outcome in the Gulf and have discounted matters accordingly. The Boards of some major construction companies and get-rich-quick professional and financial service advisers may not quite have understood the 'risk profile' as well.

Uncomfortable Risks

This crisis is not going to bring down capitalism by any means but it presents some very uncomfortable risks for London in particular. Hysteria about a second global crunch can be discounted but we should not be complacent.

David Cottle on the Wall Street Journal Blog puts things into some perspective today but he notes that:

"Dubai did as many larger, older countries have done and carried on borrowing and splurging through the economic downturn ... [the current crisis] does serve as a reminder that, no matter where you are, the money runs out in the end."

There are two issues here for London. The first is that money does run out in the end. This lesson must strike home in the week that the public found out that the Bank of England had secretly printed £61bn of cash (later repaid) to help two rocky Scots bank get out of the hole they had dug themselves.

Promoting Dubai

The second is that, in its national business model of heavily promoting the City of London to overseas capital centres in order to increase tax take, the British Government encouraged a lot of construction and service sector companies to ignore some fundamental risks in supporting Dubai's megalomania.

Banks and Government have probably been deluding themselves that everything might go to the wire but that Abu Dhabi would eventually cover all Dubai's financial liabilities, after extracting some political advantage, and that all accumulated local debts to British companies would then be paid.

These latter have not been quantified but they are very worrying. Most big companies have been able to make appropriate banking arrangements on an implicit sovereign promise to pay so the decision by Dubai to declare a unilateral holiday on debt repayments will have shaken some banks badly.

Knock-On Effects

This is represented by the falls in bank shares in London but there are many mid-sized law firms and other advisory firms and payment-on-payment suppliers to the larger companies who cannot last out much longer and for whom the expectation of payments and new business restarting soon was vital.

The knock-on effect to some over-stretched City of London professional and financial services firms and small export-led businesses could be considerable. We cannot be sure of this because there are no figures but the British commitment to the region has been substantial.

We had advised our contacts to be cautious about the Gulf after the 'credit crunch' but some desperate service firms felt they had nowhere else to go as business dried up in London. They certainly seemed to be backed up by the positive talk from Government and banks about prospects.

London's Vulnerabilities

This need not, by any means, turn out to be a complete disaster. Abu Dhabi is still likely to step in after exacting whatever leverage it requires but the assumption that all will be settled by dynastic whim has been replaced with a dangerous uncertainty that these people actually know what they are doing.

But what is the worst case for London? There are several risks here. The first is the obvious one that some British companies will crack, reducing the tax base and the reputation of the City of London.

A second is that the pressure on banks involved in the Gulf will require another round of financial assistance from the Bank of England which will not be so easy to keep secret and may not be so easily repaid if recovery falters.

Investor Assessments

What this means is that the Bank of England could start unnerving investors about how much it is prepared to print money and how much it is prepared to be open about its policies. King's decision on the secrecy of the £61bn appears to have been accepted but future secrecies may not be.

If the vast overhang of existing debt is to be managed, it can only mean massive spending cuts, increases in taxes ... or dealing with the problem by printing money. The investment community does not care about the first two but it does care deeply about inflation, let alone hyper-inflation.

If the democratic political process severely limits Government's ability to recoup its expenditure on (as the public may see it, possibly unfairly) ensuring bankers keep their jobs and their bonuses, the temptation to print money must eventually become overwhelming.

Inflation

As Cottle implies, the international investment community has, to date, given the benefit of the doubt to the Keynesian strategy of spending your way out of crisis into recovery, recouping the costs later on tax revenue and a return to sound financial management. But this is predicated on sustained recovery.

The Dubai case is definitely not comparable with developed Western economies but it must unnerve some investors on the very grounds that Cottle suggests - eventually the money runs out and (though he does not say this) you have to print it. Without adequate asset-backing, it becomes worthless.

The oil price fell on the news from Dubai but the British case may be complicated by the expectation that, while the crisis might hit global recovery somewhat, an eventual recovery is coming and it will increase food and oil prices.

If the UK is lagging because it is still clearing up the disproportionate mess in its own books then we may get a period when Government is forced to 'print money' while commodity prices are rising. This would bring back 'stagflation' - not seen in the UK since the 1970s.

Disproportionate UK Risk

The Dubai crisis also hits the UK disproportionately because of its past policy of supporting Dubai's pitch to be the natural 'time zone' financial centre without fully understanding that dynastic megalomania might have been undermining that ambition at another level. 

There is an even bigger picture here which goes back to the oddities of British foreign policy in the wake of Tony Blair's disastrous and somewhat private decision to be the US' out-rider in the region - a story painfully being unravelled in the current Iraq Inquiry.

Two policies have converged on Dubai. The first is the UK's determination to be an export led services provider to the world in order to maximise tax take from the City of London. This must be seen as central to its active encouragement of what may turn out to be over-investment in Dubai.

The second is the effect on its foreign policy of a determination to buttress the dynasts who maintain the stability necessary to build mega-projects that hire British construction companies and develop the infrastructure for a financial hub that gives business to expert services.

Unfortunately this has also meant that the UK has become the Gulf's voice in Washington regardless of its lack of democracy and adequate human rights cover and that it has developed a forward policy on Iran that places it as an enemy of a country that might have been a market.

Where We Are

The choice of the Gulf over Iran is not so much of a moral choice as liberal-progressives would like us to think. It has been a choice for a services export approach based on the City over the export of more general consumer manufactures and capital goods.

So the crisis in Dubai is significant at many levels. It shows us that the world economic crisis is not yet over, that dynasts are still only half-baked members of the Western system and that the UK's economic and foreign policy are dangerously entwined.

Like Cottle, we do not think this crisis is shattering. The spinners are determinedly, and probably rightly, referring to it as a 'sideshow' as far as the global financial system is concerned. But the UK is particularly exposed to this one and all the 'spinning' from London will not change that fact on the ground.

We do not think this crisis will shatter the British economy but it is another blow to it in its weakened state. It may further limit policymakers' room for manouevre. What we have to do now is ask how we ever got into this position in the first place?