31 December 2010 3 Comments
One major concern the public has is with the economy. One major problem them Lib Dems have is with the economy as the leadership changed its mind on the situation and what needed to happen to provide the security the population needed. The Lib Dems have been seen as sell-outs to the Tories as a result. The Lib Dems need a new angle on the economy to get the initiative back.
Vince Cable was first to propose to nationalise the UK’s failing banks. He subsequently called on them to lend to small and medium sized enterprises. He now finds himself frustrated that they are saying they are not getting the funds they need while the banks say they are lending to those who are asking for it. Perhaps the Lib Dems could learn from the Germans who have had a very good system in place which they are continually rewarded for.
KFW was founded in 1948, a bank to promote the industrial rebuilding of a country wrecked by war. It now operates in a straightforward, linear fashion. Corporate customers apply to their own, private bank for financing. The bank then forwards the application to KFW which then assesses the project for the “fit” with its key strategic targets to promote SMEs, entrepreneurialism, clean-technology, nationally important infrastructure projects and international project finance. The bank can then re-finance the loan at favourable rates because of its government guarantee and its access not only to the capital markets but also to federal budgets. Its board is partly made up of politicians but its management team are banking executives (see the Daily Telegraph’s write up here)
This has not gone unnoticed with Lord Mandelson backing a state investment bank. A state-run bank would stand the private finance initiative on its head. Instead of getting the private sector to raise expensive finance, build assets and lease them to the public sector, a new public sector entity – a national investment bank – would raise cheap finance to procure growth enhancing assets, then lease or sell them back to the private sector.
Such an initiative would be complementary to efforts to cut the deficit, which must be serviced out of future taxes. By expanding commercial borrowing it would also sustain aggregate demand and boost growth in the long-term. The important distinction is not whether investment is public or private, but whether it generates revenues and is self-financing, or is a charge on future tax-payers.
So it is pleasing to see Vince Cable proposing a National Infrastructure Bank as this could help the government square the circle of reducing a deficit which burdens future tax payers while supporting growth. A further state investment bank would also give alleviate people’s fears about jobs and growth and therefore let them see the Lib Dems as a force for good in the Coalition.