The US way of business

No one could conceive of an American Treasury Secretary attacking the salaries of top US business people
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IF BRITISH business is upset with Labour about interest rates and sterling, think what it will be like if Wall Street jitters herald a world recession.

It has been a bad few days for the Government's relationship with the business community. Unsurprisingly it has been gathering the blame for the level of sterling and the threat of a further rise in interest rates. While the Bank of England's monetary committee may be directly in the firing line on the latter, it was, after all, the Government that set the rules under which the bank's team has to make up its mind.

Then the relationship was further dented by the Chancellor's attack on British management, which he blamed for the fact that our productivity seems still to be lagging behind that of France or Germany. This may be factually correct; but, since Britain has been narrowing the gap over the last 18 years, maybe the Chancellor ought to be blaming the managements of the 1960s and 1970s rather than the present lot. However, Gordon Brown (oddly for a son of the Manse) forgot about the Church of Scotland injunction that I was taught: that one should not "speak the truth out of season". British managers were less than thrilled at being lectured by someone who had never worked in industry.

Finally, when the Government does try to narrow the gap between the business community and itself by bringing business people into government, it gets clobbered for that, too. Lord Sainsbury's appointment as a junior minister at the Department of Trade and Industry raised the charge that he got his job mainly because he was a big donor to the Labour Party; now the Gus Macdonald appointment in Scotland leads to squeals of "cronyism"; and all this comes on top of all the attacks made on Lord Simon, the former head of BP, for the handling of his trust fund following his appointment to government.

The poor old Government might be forgiven for feeling that it is dammed either way: accused on the one hand of knowing nothing about industry and on the other of cronyism when it brings in top-of-the-range businessmen to correct the imbalance. Something rum is clearly happening; what is it?

I think two things are happening. The first is that the Government is trying to nudge the relationship between itself and business towards the American pattern but cannot quite think itself fully into a transatlantic mindset. The second is that the business community knows intellectually that the relationship between itself and British governments has changed radically, but again it cannot quite think itself into a new frame of mind.

The rethink of the relationship between government and business was absolutely central to the new Labour reforms. The Blair/Brown view was that, if the key reason why Labour kept losing elections was personal taxation, the key reason why Labour kept failing in office was its dreadful relationship with the business community. Establishing a better relationship was crucial to getting that full second term in office that Labour had never achieved. The model was America - while the Democrats shared many of the same values as new Labour, they also managed to have a number of prominent supporters in the business community. Labour could do the same.

So, just as it is normal for an American President to bring the best and the brightest from business into the Cabinet, so too could a British prime minister. In a way, what Tony Blair has done is much more modest than either Bill Clinton or indeed Margaret Thatcher. The US has Robert Rubin, the former head of Goldman Sachs as its Treasury Secretary; Mrs T had Lord Young in the Cabinet. All Mr Blair has done is appoint some pretty prominent business people as junior ministers. In fact the most important thing about Lords Simon, Sainsbury and (soon) Macdonald is that they are not cronies; there are some cronies in the Labour ranks and, if you want to know who they are, just look at who was associated with the late Robert Maxwell. But this trio is untainted. I suppose that being a peer still carries some kudos, but the thing that astounds me is that these people are prepared to put with the flak that comes at them for what is really remarkably little reward - in the case of Gus Macdonald, no financial reward at all.

So what Labour is doing would be completely normal in the US and not at all unusual in the UK. Why the flak? Or rather, since anything a government does is quite properly scrutinised by its opponents, why do the attacks seem credible?

I think the answer lies in Labour's less-than-complete conversion to US Democrat thinking. Instinctively, business is still the enemy, and this instinct keeps bursting out. It bursts out in Gordon Brown's periodic attacks on executive salaries; it burst out in that attack on British management; it burst out in attacks on the lottery; it bursts out in attacks on the City, including the ferocious attack on pension misselling - which, while few would defend it, was not any evil plot but was the direct result of ill-constructed policies by the government of the day.

Ask this question: could one conceive of an American Treasury Secretary attacking the salaries of top US business people? The idea is ludicrous, particularly so since the present incumbent is ex-Goldman Sachs. Yet somehow Gordon Brown feels it is within the acceptable role of his office to do so.

What therefore makes the attacks credible is not their fundamental merit but the dual standard on which the Government seems to be operating. Cuddle your business cronies, bash the rest.

From the side of business, though, there is another and rather different dual standard, which in a way I think is even more corrosive. On the one hand there still lingers a feeling that part of the job of government is to be closely involved in the business community. Some of this involvement is specific: it is its job to organise incentives to invest. Other aspects of this involvement are more general: to frame fiscal and monetary policy to "help" industry. This attitude is a hangover from the old days of industrial policy, picking winners, corporatist Britain. With Tory governments you knew you were on your own, but with a Labour one you sort of expect politicians to involve themselves.

This clashes with the new independence, the spirit that proclaims that the success of business people is due to their own efforts and nothing else.

So business people find themselves defending vast salary increases on the grounds that they have earned the dosh through their brilliant management - and almost in the same breath they squeal to government that its polices are ruining their business.

It is ridiculous - just as the attacks on the new business ministers are ridiculous - but it is there. My worry is that, as the general business climate deteriorates, a relationship which is a bit strained will become truly corrosive.

That climate will get worse; I don't think there is much doubt about that. Things may not be dreadful, but they will be tougher. As times get harder we will need a thoughtful and measured working relationship between government and business. A bit of tension, sure, is healthy, for the two parts of the community perform different tasks. But if things deteriorate in the way that they did during the last Labour government, trudging through the downturn will be a much more disagreeable journey than it need be. And all of us will suffer.