City & Business: He's under fire, but Blair must stick to his guns

First came Labour's Bernie Ecclestone million-pound campaign contribution scandal. Then came 5,000 miners' jobs possibly going down the shute because of Government reluctance to subsidise deep-pit mining. Now comes news of record City year-end bonuses in defiance of the Government's calls for pay restraint.

For six months Tony Blair seemed a juggernaut. Now tough issues are revealing his limitations.

The political consequences of this are easy to imagine. Mr Blair's popularity will tail away. He will struggle to keep his backbenchers in line. Hacks who fawned and slavvered this summer will snipe this winter.

But underlying the political problems stands an even more forbidding economic one. Mr Blair swept to power positioning himself as Thatcher with a human face. His unstated slogan was "Prosperity Through Social Justice". Since the election his Government has unveiled an adroit mix of economic initiatives built round this slogan.

It has put a shot across the bow of the City's sharp practice merchants by "naming and shaming" pension mis-sellers. It created a new City regulatory regime. It distanced the Bank of England from political manipulation. It has helped British companies by cutting corporate tax, supporting the pounds 50bn Eurofighter project, and standing up for British industry in Brussels. And it has tried to push the labour force up the skills curve through improving education and starting a welfare-to-work programme financed with a pounds 3-5bn windfall profits tax on privatised utilities.

All this sounded fine. But now the Government's economic policies initiatives are on the table. Its bag of tricks is empty. It will be months if not years before the results kick in.

Result: Mr Blair faces the same post-electoral hangover next year that Mrs Thatcher faced in her second year in power and there is no Falklands War on the horizon around which to rally the nation, even if he wished to stoop in that direction.

In the face of the gap between implementing policy and waiting to see the results Mr Blair has little choice but to develop a theme toyed with last spring but chucked aside:

Globalisation is brutal but Britain has no choice but to play the game. To play the globalisation game Britain needs companies that can stand up to fierce international competition. Britain can promote these companies, not by copying the US or continental Europe, but by pioneering a third way between these two polls.

Last spring Mr Blair called this third way "stakeholding". But this smacked of running Britain's biggest companies like co-operatives. "Stakeholding" sounded silly and was.

Instead, Mr Blair needs to press for something more subtle: British companies that work in traditional hierarchical mode - giving primacy to shareholders and managers - while flattening out the differences in compensation earned by owners, managers, and workers.

As he struggles to find policies that make "Prosperity Through Social Justice" a reality, it will be easy to trash his efforts. Still, there are precedents. Chris Haskins has built Northern Foods into a successful company by being fair to workers. Last year Mr Haskins gave himself a pay rise of pounds 62.

Richard Budge of RJB Mining should take a leaf out of Mr Haskins' book and strike a deal with the Government. Mr Blair will give him the subsidy he wants to save 5,000 mining jobs. In return Mr Budge will agree to take a 50 per cent pay cut.

Are such thoughts out of tune with prevailing Social Darwinism? Perhaps, but we are on the edge. We can stumble forward into an age of even greater ruthlessness and social disintegration. Or we hold fast to Mr Blair's fragile Prosperity Through Social Justice theme - before we turn on one another with renewed viciousness -- and see what the act of developing this theme brings.

Still waiting for a miracle

All those frustrated with the state of the British body politic and looking for a whipping boy need look no further than the experts who repeated and amplified the conventional wisdom about the "Asian economic miracle".

Think-tanks, professors, government officials, international economic agencies, journalists, pundits - we all spoke of this miracle, never doubting that it was real and permanent. We studied it for clues to improve our own economic performance and that of other emerging markets. We praised it as an engine of world economic growth.

We were wrong. And ignorant. We stand as a warning to all those ready to believe the next batch of experts waiting in the wings to pontificate about the next economic miracle.

Real change is never anticipated. There are no economic miracles, only cycles. There are no economic models, only shifting patterns.

If the Government succeeds in setting Britain on a successful new path, it will be partly as a result of good policies, but mainly as a result of guts, plain speaking, political imagination, and the strength of its supporters.

Smart but stupid

I wonder what will happen to Barclays and NatWest now that both have admitted failure as investment bankers, sold off their stockbroking businesses at a loss - and lived to tell the tale.

The smart money must be on a merger between the two banks. In the light of last week's rumours about a merger between Swiss Bank Corp and UBS, the smart money will argue that a Barclays-NatWest link-up is vital to keep the UK banking industry globally competitive.

But the smart money is wrong. Barclays and NatWest are plenty big enough to stand independently side by side in global banking. What they need is shareholders encouraging them to invest rather than looking for a quick profit from a merger. And what they need are bigger computers and better software packages.

In the case of at least two deals now - Bankers Trust's purchase of NatWest's European stockbroking business and Morgan Stanley's aborted bid for SG Warburg - what was highlighted was the absence of good back office information technology in British banks.

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