City And Business: Labour seems to be losing the plot

For the first time since the General Election the Government's economic policy-making process looks as though it's unravelling. You can see this on the next page where we take the mickey out of the love-fest between New Labour and politically correct members of the business community.

The love-fest lingers on. But the misty aura surrounding the two blissed- out partners is fading. Tony Blair seems as much burdened as enhanced by his ties to businessmen who dispersed their energies - dangerous in a world where focus is a prerequisite for making money.

Meanwhile, businessmen associated with New Labour appear to have suffered the Curse of Blair. At least, the performance of their companies has been less than stellar.

The unravelling of the economic policy-making process is far from being a joke, however. Look at transport. The headlines inform us that clogged roads, late trains and interrupted tubes have the Government on the political defensive for virtually the first time since the election. And there appears to be deep confusion over how New Labour intends to underwrite the cost of modernising our transport infrastructure. The idea is to meld public and private sectors. This, it need not be said, is the Third Way.

But the execution of Third Way transport policies has become a tangle. Blurring the line between public and private sector may have been intended. But the mess that has resulted certainly cannot have been.

A little history: Mrs Thatcher began the game almost 20 years ago when she initiated the world-wide wave of privatisations. New Labour has taken this game forward with Public-Private Partnerships. PPPs are partial privatisations.

Typically, in a PPP, a private company will buy 51 per cent of a former state company from the Government, while the state retains 49 per cent and a golden share, giving it a veto on matters like foreign ownership.

But PPPs are only one of New Labour's brainstorms on the public-private frontier. There are also Private Finance Initiatives. PFIs are arrangements whereby the state agrees to underwrite a portion of the risk in a project - say a mammoth transport project - in return for access to private capital.

Typically, in PFIs, the state wants a large amount of capital in return for underwriting a small amount of risk. The private partner wants the opposite. My impression is that the private partners in PFIs have pretty much got the better deals.

But it's not the case-by-case of what's happening in transport that tells the story. It's the aggregate. The mushrooming of techniques for blurring the boundary line between the public and private sectors demonstrate the intellectual fecundity of New Labour economic gurus and Whitehall mandarins. But it remains to be seen where this blurring is taking us.

On Tuesday, minutes before Parliament rises, we may get an inkling. Political insiders expect a statement in the House of Commons on the National Air Traffic Service (NATS). They expect the Government to say it is belatedly proceeding with the sale of 51 per cent of NATS to a private partner. Such a sale should rake in between pounds 300m and pounds 500m for the Treasury. More, it means the pounds 1bn of capital investment NATS needs over the next 10 years would come from the private sector, not the public purse.

But backbench Labour MPs and Lib-Dems think it's a terrible idea. They think that complicating the ownership of the service could, at its most sensational, lead to a collision of two 747s over London.

ANOTHER good example of New Labour economic policy-makers losing their way is supermarkets. There's little doubt there's something seriously wrong with our food system. Having cried wolf in the past, farmers are now going to the wall in droves.

But the problem is enormously complex - tied up not only with Brussels Common Agricultural Policy and World Trade Organisation rules but also America's urge to globalise commodity markets, food manufacturing and retailing.

Into this thicket leaps the Government with a concerted attack on prices in Tesco, Sainsbury, Asda and Safeway. "Kill rip-off Britain," the cry goes up. But spin is getting mixed up with reality. There is a rip-off element in our culture. But the supermarkets are not part of it.

Indeed, the Government's behaviour toward the supermarkets has been misguided at best, cynically counter-productive at worst. Here's the history on this one: after being elected, New Labour briefed papers attacking supermarkets in the guise of championing the consumer's cause. Then the Government pressured the Office of Fair Trading to investigate the Big Four to see if they were functioning as a complex monopoly - a group of companies with more than 25 per cent of their market engaging in anti-competitive practices.

After deliberating for six months, the OFT passed this New Labour-inspired political hot potato to the Competition Commission - where it will now reside until this body rules next April.

And all for what? Are the supermarkets really engaging in anti-competitive behaviour, or as they and the City argue, is the truth the opposite - there is so much competition between supermarkets they can't earn a competitive return on capital?

The fundamental question is even more disturbing: is government policy on supermarkets good or bad for the national interest? Supermarket executives say it's bad.

They argue that the Competition Commission's investigation casts a pall over their sector, which further depresses already depressed supermarket company share prices, which makes them easier prey for foreign bidders, whose ultimate ownership of this world-class British industry will be bad for our farmers, non-global food manufacturers, and eventually, consumers.

The Third Way was originally designed to create a framework - through investment in education, infrastructure, and other public services - whereby private-sector energies could be unleashed in a socially just fashion to help us prosper in ferocious global markets. But now it risks becoming a bastard exercise in political spin and economic micro-management - a great botch of control freaks.

It's time to open up the political process and make it more intellectually honest. It's time to make the Third Way a debating point, not the political property of the modernising wing of the Labour Party.