Thursday 30 January 2020 ★ FINANCIAL TIMES 11

Opinion

I

t was plain that Christian Bale is the

actor of our times when he made

constitutional jurisprudence sing

on screen. As a fearsome Dick

Cheney inVice, he encounters,

digests and then implements the “uni-

tary executive theory”. This lavish con-

strual of White House power, touted by

rightwing lawyers in the 1970s, sidelines

those bothersome checks and balances.

It was the intellectual alibi for perhaps

the mightiest vice-president in US his-

tory.

This week, as Donald Trump’s law-

yers fend off impeachment charges, the

film rewards second viewing. The likes

of Alan Dershowitz have not majored,

you will notice, on the facts of the

Ukraine scandal. Only so much time is

spent on whether the president sought

Kyiv’s help against his domestic oppo-

nents, on pain of withheld aid. Instead,

the legal defence is that such behaviour

lies well inside his remit anyway. The

quid pro quo purportedly set out in a

new book by John Bolton, the former

national security adviser, is not damn-

ing, says Mr Dershowitz, “even if true”.

When the Senate acquits Mr Trump in

the coming weeks, partisan fealty will be

the main reason. That, and what

Michael Gerson, the former speech

writer to George W Bush, calls “under-

standable cowardice”. Republicans who

believe that Mr Trump has a case to

answer also know that he will turn his

tweets, his voters and his donors on any

who defy him.

There is another motive at work,

though, and it is as troubling as naked

fear and my-party-right-or-wrong. Lots

of Republicans sincerely believe in an

all-powerful presidency, at least when

one of their own occupies it. Their vote

to acquit is the culmination of half a cen-

tury of conservative thought in that

direction. And for all the uniqueness of

Mr Trump, his special knack for reduc-

ing once-serious conservatives to jelly,

this deference to executive power will

not vanish when he goes.

After likening Franklin Roosevelt to a

monarch, conservatives rather came to

terms with presidential power. They

cited the unique exigencies of a world

hegemon. Richard Nixon assumed wide

discretion to prosecute the Vietnam

war. Ronald Reagan needed legal cover

for secret operations in Central Amer-

ica. Under Mr Bush, it was the war on

terror that justified a new round of cen-

tralisation, with Mr Cheney as the de

facto if not de jure beneficiary.

Thus did the party of small govern-

ment come to deify the White House.

Thus did a party of constitutional origi-

nalists read sweeping powers into parsi-

monious text. It took a big-government

liberal, Arthur Schlesinger, that fixture

of Camelot, to deplore the “imperial”

presidency.

In China, the US has a different chal-

lenger now, but the Republican answer

— a free hand for the commander-in-

chief — never changes. It is all the more

urgent, they would say, in a world of ris-

ing autocracies. Some conservatives

fear for America’s viability as a super-

power if its leader has to act with less

freedom than is enjoyed by Xi Jinping

(or Vladimir Putin in Russia or Turkey’s

Recep Tayyip Erdogan).

When liberals accuse the GOP of

strongman-worship, they tend to mean

a shallow and pathetic adulation, a

schoolyard crush on the tough kid. If

only. It is more thought through than

that. It is a legal doctrine backed by a

political analysis. At its core are misgiv-

ings about whether checks and bal-

ances, as presently constituted, are rec-

oncilable with great-power status. This

tension between limited government

and national grandeur is innate to con-

servatism. John Locke does not always

prevail over Thomas Hobbes.

A case in point is the Republican

defence of this president. At times, it

does not contest the facts so much as

question all the fuss, as though there

were something herbivorous and emas-

culating about constitutional niceties in

a world governed by raw power. For all

the focus on Mr Trump, a President

Mike Pompeo (now secretary of state)

or a President Nikki Haley (the recent

UN ambassador) could count on no less

awesome latitude from Republicans.

The partisanship behind the coming

acquittal is aired often. It is the main

part of the story, no doubt, but it is also

the domestic part. The global dimen-

sion of what is the first impeachment

over foreign policy is sometimes missed.

For 50 years, conservatives have won-

dered if the president is too trammelled

to guard US interests in a brutal world.

It is not a frivolous concern. There are

Europeans with similar qualms about

the fragmented, consensualist EU in an

age of unitary autocrats. Still, we are left

to guess how Republicans will feel about

an imperial presidency when it is Bernie

Sanders or another Democrat atop the

Augustan throne.

[email protected]

When the Senate acquits

Trump in the coming

weeks, partisan fealty

will be the main reason

How Republicans came to deify the presidency

that company accounts were accurate.

The UK’s senior managers and certifica-

tion regime, created after the 2008 cri-

sis, also requires personal signoffs.

These cases are also spreading outside

the financial realm. In France, former

Orange CEO Didier Lombardwas sen-

tenced to jail in December for heading

up a restructuring linked to employee

suicides. In the US,John Kapoor, former

chief executive of drugmaker Insys, will

spend five and a half years in prison for

a scheme to bribe doctors to prescribe

the company’s opioid spray. And Brazil-

ian prosecutors last week filed homicide

charges against former Vale chief exec-

utiveFabio Schvartsmanover last year’s

deadly mining disaster.

Such cases remain hard to bring and

harder to win: criminal charges against

former Volkswagen chief Martin Win-

terkornover its 2014 emissions cheat-

ing scandal have yet to come to trial.

But we have to try. The worst kind of

deterrence is none at all.

[email protected]

casts further doubt on the basic effec-

tiveness of supersized penalties. It

looked at the 25 largest US corporate

settlements and found that share prices

went up rather than down both on the

day and 25 days after the penalties were

announced. That may reflect relief that

the investigations were over and fines

were no worse, but it’s hard to see how a

share price rise provides deterrence.

Whatever their effectiveness, large

fines are falling out of fashion under US

President Donald Trump. In the first

two years of his administration, the

Department of Justice levied $20.6bn in

corporate penalties — 80 per cent less

than the $101.2bn in the last two years

under Barack Obama, according to con-

sumer group Public Citizen.

Which brings us back to finding effec-

tive ways to punish individuals. The

Stumpf penalties for failing to act offer

one solution, but there are other ways to

make it easier to hold top executives

responsible. After Enron collapsed, the

US began requiring CEOs and chief

financial officers to certify personally

That begs the question of whether

there is a better way. The US has experi-

mented with astronomical corporate

fines. Regulators argue that fines hit

executives — whose bonuses are often

tied to earnings and share price — and

provide incentives for boards and inves-

tors to provide more vigilant oversight.

But critics such as former Securities

and Exchange Commissioner Paul

Atkins argue that such fines effectively

hurt investors twice. There are other

reasons to doubt their effectiveness.

Multiple pharmaceuticals groups such

as Pfizer and A straZeneca are repeat

offenders, and Purdue Pharma contin-

ued to market opioid painkillers aggres-

sively despite a $600m fine in 2007.

A study commissioned by Prof Coffee

is also being banned from working in

banks.

The Wells action comes even though

Mr Stumpf was never personally linked

to the scandal that saw employees open

millions of bank and credit card

accounts that customers did not author-

ise between 2002 and 2016. The OCC

alleged that Mr Stumpf “failed to

respond to numerous warning signs”

and accepted assurances from his

underlings that complaints about sales

practices were isolated problems.

Some defence lawyers argue that it is

draconian to punish Mr Stumpf simply

for failing to ask enough questions. They

worry that the settlement could frighten

good people away from serving as top

executives.

To the rest of us, it seems obvious that

holding CEOs personally accountable

sets an example that might make other

executives think twice about presiding

over widespread misbehaviour. To that

end, the US has been steadily ratcheting

up prison sentences for white collar

crime for decades.

Yet actual criminal cases against top

executives have remained few and far

between. With the notable exception of

banks in Iceland and Ireland, no bank

chief executive served jail time for the

2008 financial crisis. “It’s extremely dif-

ficult to make a case against the senior

executives because they don’t get

involved in operational issues. But they

can put extreme pressure on the lower

echelons to cut costs or hit targets,” says

Columbia law professor John Coffee.

L

ast week, the Swiss banking

regulator announced it had

punished a local bank chief

for insider trading using priv-

ileged information obtained

at work. Finma said it is confiscating

730,000 francs ($752,000) in ill-gotten

gains and banned the executive from

managing a bank for four years.

Insider trading cases of this nature are

reasonably common. The US Securities

and Exchange Commission took action

in at least three this month. But the

Swiss case captured attention because

Finma scrupulously refused to name

the person involved or even the bank.

Swiss officials argue that banning the

man — the press release used male pro-

nouns — more than fulfils Finma’s man-

date to maintain orderly markets. “We

don’t need to destroy his life,” one says.

The Swiss reluctance to name and

shame stands in stark contrast to an

American action againstJohn Stumpf

that came the day before. The Office of

the Comptroller of the Currency said

that the former Wells Fargo chief execu-

tive would pay $17.5m to settle a probe

of his role in the fake accounts scandal

that continues to weigh on the bank. He

A punishment

to fit the white

collar crime

Whatever their

effectiveness, big fines are

falling out of fashion in the

US under this president

I

t must be the least known epicentre

of global terrorism. Burkina Faso, a

landlocked country in west Africa,

is now home to the world’s fastest-

growing Islamist insurgency. Only

last weekend, suspected militants

attacked a market not far from the

lightly patrolled border with Mali, kill-

ing some 50 people.

That was merely the latest in a grue-

some string of attacks on targets soft

and hard. Thousands of people were

killed last year and some 560,000 dis-

placed in a country of 19m. On Christ-

mas Eve, 35 civilians — 31 of them

women — were slaughtered when doz-

ens of militants on motorbikes rode into

town in Soum province, where last

weekend’s attack took place. A few days

later, 11 soldiers were killed at a military

base, again in Soum. As the crisis

escalates, the Norwegian Refugee Coun-

cil predicts the number of displaced

people will rise to 900,000.

Burkina Faso borders six countries.

Two of them, Niger and especially Mali,

are centres of Islamist insurgencies

themselves. They are home to a pot-

pourri of homegrown rebellions, foreign

fighters linked to al-Qaeda and

Isis, criminal gangs and weapons pour-

ing out of Libya. The lure of fundamen-

talism, with its promise of order, is

strong in parts of the country where

traces of the state are as wispy as gun

smoke.

The other four countries — Ivory

Coast, Ghana, Togo and Benin — are

coastal nations that have mostly been

spared terrorist attention. That is likely

to change. Geography and circumstance

have rendered Burkina Faso a potential

conduit for a jihadi insurgency that now

menaces much of west Africa.

The country is the latest battleground

in a war that first announced itself in

2012. Then, local Tuareg rebels joined
      forces with al-Qaeda affiliated foreign
      fighters. They quickly took over much
      of northern Mali, imposing a sharia
      regime in a region previously known for

tolerance, music and ancient learning

centred on Timbuktu. It took a 2013

invasion by French forces wielding for-

midable air power to dislodge them.

Operation Serval, as it was called, was

a swift success. As so often in military

interventions, the follow-up has been

less impressive. The French, rightly, had

no plans for nation building. Unfortu-

nately, it seems, neither did the Malian

government.

The Islamist threat has since meta-

stasised. In Mali, central towns such as

Mopti and Gao are in effect beyond gov-

ernment influence. Fighting has spread

to Niger and Burkina Faso. The region

has drawn fighters fleeing the crumbled

caliphate in Syria and Iraq.

On paper, the response is joined up.

On the ground, it has been piecemeal.

The so-called G5 group of five Sahelian

countries — Burkina Faso, Chad, Mali,

Mauritania and Niger — has formed a

combined force to battle the insurgency.

Signs of strain are everywhere.

Too often, government troops —

poorly trained, poorly equipped and

poorly paid — commit their own atroci-

ties, stoking further resentment. The

title of a Human Rights Watch report on

Burkina Faso — “During the day, we are

afraid of the army, and at night of the

jihadis” — tells you much of what you

need to know.

The western response is almost as

shaky. France has 4,500 troops in Mali

under the umbrella of Operation

Barkhane. The US has several hundred

personnel and two drone bases in Niger.

But nerves are jangling. Last month,

Emmanuel Macron, France’s president,

angered by anti-French sentiment —

some of it coming from government offi-

cials themselves — threatened to draw

down his troops. He is right. Regional

governments need to back the French or

sack them. They cannot have it both

ways.

In the end, Mr Macron agreed to bol-

ster the French presence with 220 extra

troops. Coalition forces will, at least

in theory, be under joint French-G

command. Mr Macron has urged the

US not to quit, as has been floated, call-

ing its presence “irreplaceable”.

Irreplaceable or not, a military

response alone is not enough. Mishan-

dled, it could be counterproductive.

Insecurity loves an institutional vac-

uum. In much of the Sahel, that is

precisely what the insurgents have

found. The most urgent need is for a

functioning state. That means spread-

ing the public goods — schools, health-

care, infrastructure, economic opportu-

nity and security — that are the gift of

good governance.

While this is primarily the responsi-

bility of national governments, they are

mostly failing in their task. They

urgently need to build a social contract

between themselves and those in whose

names they govern. If outsiders can help

in that cause, that is where their priority

should lie.

Military intervention is no long-term

solution. Judging by the recent escal-

ation in violence, it may not even be a

short-term one.

[email protected]

Landlocked Burkina Faso

is now home to the

world’s fastest-growing

Islamist insurgency

Governments are losing the fight against jihadis

AFRICA

David

Pilling

AMERICA

Janan

Ganesh

T

he polic y framework

reviews under way at the

Federal Reserve and now

the European Central Bank

are the monetary equiva-

lent of swimming upstream: a lot of

energy will be expended, but they won’t

really get anywhere. To the extent that

these reviews continue to focus on

tweaking inflation targets as a strategy,

they will be largely pointless.

The Fed and the ECB have been clear

that it is not their mandates that are in

question, but how to fulfil them. The

prevailing strategy has been to set an

explicit target for inflation. The idea is

that this builds credibility with markets

and consumers, who will then know

what inflation is likely to be over the

medium to long term. This worked

when inflation was high and variable.

But now we have the opposite prob-

lem. Since 2009, the Fed’s favourite

measure of inflation, the personal con-

sumption expenditures price index, has

averaged 1.5 per cent, well below the 2

per cent target. The ECB has fared even

worse, with its favourite measure, the

Harmonised Index of Consumer Prices,

averaging only 1.3 per cent over the dec-

ade. (The ECB target is “close to, but

below, 2 per cent”).

Stubbornly low inflation pulls bench-

mark interest rates down, giving a cen-

tral bank less ammunition to fight

future recessions. And persistently fail-

ing to hit an inflation target undermines

a central bank’s credibility.

Inflation targeting can also result in

counterproductive monetary policy in

the face of supply side shocks, such as

oil price spikes or jumps in p roductivity.

Nevertheless, both the Fed and the ECB

seem determined to stick with some

variation of inflation targeting. The Fed

has said it will not change its 2 per cent

target. The other options it is deliberat-

ing appear to be price-level targeting

and average inflation targeting.

The ECB, which has only just started

its review, has made no commitment to

its target. But according to a Bloomberg

survey of economists, nearly 90 per cent

expect any new strategy to enable the

central bank to under- and overshoot an

inflation goal.

Obliging a central bank to overshoot

on inflation after undershooting lacks

credibility given that central banks have

persistently failed to hit their targets for

the past decade. If they are serious

about achieving their mandates more

effectively, the Fed and ECB should con-

sider other strategies.

One has been circulating for decades:

target the sum of inflation and total real

output, or nominal gross domestic

product. With NGDP targeting, a central

bank automatically lowers rates as out-

put falls, to push up inflation. That eases

real debt burdens and lowers real inter-

est rates, helping to generate growth.

As output rises, rates adjust higher to

bring inflation down and maintain

the target.

A potential obstacle is that NGDP is

reported quarterly, with a lag. But

NGDP could be reported more fre-

quently and accurately if the Fed

treated it as a priority. The Fed could

also target the forecast of NGDP instead,

which is reported in the monthly blue-

chip economic indicators survey of

business economists.

Another strategy is yield curve con-

trol, employed by the Bank of Japan.

If growth and inflation are weak, the

central bank can peg rates low, reducing

borrowing costs, raising stock prices

and weakening the currency. Consump-

tion and investment rise, boosting

growth and inflation. If investors

believe the central bank is determined

to maintain the peg, it can achieve this

without buying up many assets. But if

investors are sceptical, the central bank

is forced to expand its balance sheet or

lose credibility.

There are no silver bullets. And this

shouldn’t be just a public relations exer-

cise. The Fed and ECB should think

boldly about alternative approaches.

The writer is a senior fellow at Harvard

Kennedy School

Central banks

are swimming

against the tide

on inflation

If they are serious about

achieving their mandates,

the Fed and ECB should

consider other strategies

BUSINESS

Brooke

Masters

FINANCE

Megan

Greene

JANUARY 30 2020 Section:Features Time: 29/1/2020 - 17: 34 User: dana.prince Page Name: COMMENT, Part,Page,Edition: LON, 11 , 1