His claim that the UK's hard currency has produced reduced wage settlements is no more convincing. Currency discipline may explain low settlements among exporters, but domestic services in import-using sectors have also paid low settlements, even though they face no external pressures. What these sectors have in common, of course, is that they are operating in an economy that is flat on its back. Even if devaluation of 20 per cent occurred, this would continue to be true.
In any event, can we take sterling seriously as a hard currency? There are a number of economies round the world that are massive net producers of goods in international demand. Some of these economies, for example, Germany and Japan, have low inflation and hard currencies, and some such as Brazil and Thailand have high inflation and soft currencies, but I cannot recall any hard currency country that is, like the UK, a colossal importer.
The policy prescription is obvious and that is to ensure that an exporter operating at average national level of efficiency will enjoy attractive profits. Since this is the policy that the IMF proposes to its Third World clients we know it is the one we will have to adopt sooner or later, so why pretend otherwise in the meantime?
Professor of Banking &
Manchester Business School