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LSE Libya link leaves questions

by Malan Rietveld, Chief Economist

LSE Libya link leaves questions

Was Howard Davies’ resignation as director of the London School of Economics (LSE) an over-reaction to revelations to the university’s relationship with Muammar Gaddafi’s government? And what are the implications for links between western banks and asset managers with the Libyan sovereign wealth fund?

Sir Howard, a former deputy governor of the Bank of England and head of the Financial Services Authority, stepped down in early February due to bad publicity emanating from the LSE’s relationship with Libya. Most prominent was a donation from a charity associated with Saif Gaddafi, the son of Muammar Gaddafi, to fund research on governance issues. The university agreed to accept a £1.5m donation from the Gaddafi International Charity and Development Foundation in 2009, and has received a fifth of the funds to date.

The LSE’s connections with the Gaddafi regime run deeper still. Saif Gaddafi received Master’s and Doctorate degrees from the university (the latter is now being investigated following allegations of plagiarism) and he gave the prestigious Ralph Miliband memorial lecture in May 2010. Davies gave $50,000 to the university, his fee for advising the Libyan Investment Authority, the country’s sovereign wealth fund, in 2007. And the university has a £2.2m contract with Libya’s Economic Development Board to train Libyan civil servants and professionals, £1.5m of which has been received to date.

These connections are now subject to an investigation by the LSE’s governing council. They reflect badly in light of the terrible escalation of violence in Libya and the Gaddafis’ stubborn and increasingly brutal resistance to those telling him his time is up. But the university’s engagement with Libya needs to be seen in its proper context. Did the university really act immorally? Or was this simply a case of bad judgment, only revealed with hindsight?

The LSE’s overtures to Libya cannot be separated from the coordinated efforts of Western governments over the past decade to bring Gaddafi in back into the international fold. This strategy seemed to be bearing fruit. Gaddafi gave up his nuclear ambitions. Markets were opened for foreign investment. Saif appeared like a reformer destined to take over from his father. As part of UK strategy of re-engagement, Sir Howard was invited by Tony Blair, the former British prime minister, to visit Tripoli and advise policymakers.

As a consequence of the visit – and further indication of a reforming leadership’s commitment to institution building – the Libyans decided to send hundreds of civil servants to one of the world’s best universities for public policy for training. This might seem like an advertisement for ‘reform from the inside’, in the spirit of the LSE’s Fabian founders. We now know that this vision was a wildly optimistic one – and that the decision to engage Libya while Gaddafi still held the reigns was gamble that didn’t pay off. But given the context, the LSE might have been better advised to acknowledge it made a mistake, and that it will take the following steps: (a) refuse further funding in any way linked to Gaddafi, (b) redirect the funds to scholarships, (c) announce a transparent Inquiry into its relationship with Libya, (d) tighten up its own standards for accepting funding from all governments.

Sir Howard’s resignation might seem like a case of political correctness gone too far. We don’t seem to be hearing calls for heads to roll at various western corporations and governments whose dealings directly benefited and sustained Gaddafi’s regime. And the same goes for the banks and asset managers who managed money for the Libyan Investment Authority. Some of their dealings, by comparison, may make the LSE’s Libyan connections look somewhat banal.

Prof. Lord Meghnad Desai, chairman of the OMFIF advisory board, was one of the two external examiners of the thesis under which Saif Gaddafi, the son of Muammar Gaddafi, was awarded a PhD at the LSE in 2007. Lord Desai, founder of the LSE’s Centre for the Study of Global Governance (now LSE Global), who retired from the LSE in 2003, says there were no links between the PhD and a donation received from Saif Gaddafi’s foundation and no grounds for not registering him as an MSc student in 2003.