City & business: To hell with what they say: let's redistribute wealth

Click to follow
The Independent Online
IF IT weren't so serious it would be funny. Here we have the worst world economic crisis in 50 years and what does the Prime Minister do in response? He grabs the handbag of one of the crisis's master architects, Lady Thatcher, gets up on her high heels, and mimics her.

Listen to Mr Blair: "There is no alternative ... No U-turns." Speaking from China last week: "We have to stick to policies that provide stability for the long term and ensure we never go back to the record days of boom and bust, record repossessions, record bankruptcies, record borrowing and interest rates at 15 per cent."

Well, yes. We must, by all means, ensure that in future we never return to boom and bust. But what about today? What about this bust? With whom and what is the Prime Minister doing battle with his rhetorical flourishes, anyway? The Conservative party?

Forget it, Tony. You mopped the floor with the Tories 18 months ago. Your enemy is a second great depression, not the motley crew assembled in Bournemouth last week.

You may think you're already fighting a second great depression, but you're not. Listen to the Chancellor. Gordon Brown has spent his entire working life championing Labour, and who does he end up sounding like?

A banker. Last week Mr Brown divided his efforts between working on a "21st century architecture" for inter- national finance and counting the pennies in his budget to show that the Third Way can survive a serious recession.

"Senior ministerial sources" said last week that the Chancellor would use reserves set aside for a rainy day, amounting to pounds 30bn over the next three years. These reserves, the sources explained, would make up for the tax income the Goverment expects to lose now that the Chancellor says the economy will grow about 1 per cent in 1999, not 2 per cent as previously forecast.

No doubt the arithmetic adds up. Still, it remains mumbo-jumbo. Economic forecasts are no more than extrapolations of past trends. But the world crisis has created the biggest break in economic trend lines since the Second World War.

Mr Brown made the customary excuse: "Slower world growth makes it inevitable that growth in Britain next year will be more moderate."

The question is, what is Mr Brown going to do in the face of this "slower world growth"? His strategy seems to be to wait and see how the crisis beds down - wait and see, in other words, how bad it gets. Meanwhile, in Washington last week, he strengthened the already strong ties between the UK and US governments. As a team, the UK and US pressed for interest rate cuts. The two countries called for a tweaking of the international financial regime. Together, they proposed Third Way thinking for the future bailouts of countries like Brazil. In such bailouts, according to the new formula, the tough conditions attached to IMF loans will be partly offset by World Bank "social spending".

The trouble with the Government's strategy is that it makes the UK a cheerleader for Clintonomics. But Clintonomics is in large part what got us into the present mess.

Washington is making vigorous efforts to dig itself out of the mess now. But the situation is unbelievably complex. The Clinton administration remains as much a part of the problem as it does the solution.

THREE years ago I went to Mexico to report on the country's near brush with bankruptcy - the 1994-95 peso crisis. I spent an evening with two Mori pollsters in a poor neighbourhood of Mexico City - homeless kids, women washing laundry in sewers, men living in homes made of car parts and corrugated tin.

The Mori pollsters were not there to interview the abject poor, however. They had gathered six women from Mexico's proper working class to discuss the peso crisis. We sat in a dingy, low-ceilinged room with a crucifix on the wall. The women had all clawed their way up from jobs like cleaning floors to jobs like taking tickets in a bus station. Now, as a result of the crisis, they had been pushed back to cleaning floors.

All blamed the North American Free Trade Act, which opened the trade borders between the US and Mexico. When I asked why they had blamed this part of Washington's grand design for a global economy, one woman replied obliquely. Her family came from Michoacan, she said. They were farmers. Before Nafta, crop prices were subsidised. After Nafta the subsidies dried up. Her brother had started to grow cocoa for the local drug baron.

Returning from Mexico, I stopped off in Washington, where I interviewed the deputy US treasury secretary Lawrence Summers. He told me the peso crisis was under control. He explained how the Clinton administration had learned from it to press for greater "transparency" - getting emerging market governments to open their books.

"Transparency", Mr Summers said, would shine a light on the corrupt elites in emerging markets. In promoting "transparency", he added, the Clinton administration was playing a role in countries like Mexico similar to the role Martin Luther King and his civil rights allies played when they took on the corrupt elites in Alabama and Mississippi.

I RELATE this anecdote not to suggest that globalisation is bad; globalisation - defined as the convergence of the world's national economies - is too protean to be good or bad. I relate the anecdote to demonstrate how skewed the Clinton administration's sense of reality was in 1995, and how skewed it may remain in 1998. More "transparency" is, no doubt, desirable. The notion that by promoting it, however, Bill Clinton makes himself like Martin Luther King is grotesque. Clinton bears as much resemblance to King as the apostles do to Machiavelli.

Washington is, in short - to use the US psychobabble - "conflicted" on globalisation. The danger is that, in allying themselves with Washington, the Prime Minister and the Chancellor are in danger of losing touch with reality themselves.

So what should the Government be doing? Finding ways to stimulate the economy. This means pressing the Bank of England for more interest rate cuts. But that's the easy bit. At one level, indeed, giving the Bank operational independence, then pressing it to cut rates, is a perfect example of how Mr Blair and Mr Brown operate.

They create a useful whipping boy, then, by duly whipping it, they deflect attention from the Government's economic policies. But this is self-defeating. It distorts public dialogue. And only through public dialogue is the Government going to crystallise policies effective in fighting the crisis.

How should it stimulate the economy? It should be thinking of tax cuts to go with rate cuts - not finding ways to rebut critics wagging their fingers and warning that taxes will rise. Tax cuts, after all, are part of the West's prescription for Japan. Why shouldn't the West takes its own medicine?

The Government should also be talking with other Group of Seven nations about some form of global Marshall Plan. We need to get spending power moved out of banks afraid to lend, and into the hands of consumers whose purchases will speed the slowing wheels of commerce.

There will be all sorts of well reasoned objections to such Keynesian policies. If the UK pumps up its economy and the Continent does not, the UK could end up with inflation and no growth to show for its risks.

The point is, we are in a crisis. The genesis of this crisis is so simple as to be unmention-able in sophisticated circles. Since 1979 too much money has gone into too few hands. We need to reverse this trend.

That is what the Government is trying to do with its Third Way. But the fruits of the Government's policies have been slow to materialise. Now, with the world economic crisis, the Prime Minister and Chancellor need to take faster and bolder action. The Government, along with other Group of Seven leaders, needs to redistribute wealth aggressively.

Redistributing wealth, of course, has turned into a taboo concept during the rise of the global economy since 1979. That's why New Labour and the Third Way were invented as terms of art. That's why Mr Brown has expended gargantuan effort on developing policies that accept the markets as almighty and go from there toward social justice.

But it's the almighty markets that have got us into this mess. The policymakers must tackle the markets. The time has come for governments to even out incomes worldwide - not only in service of natural justice, but as the best policy to avoid a slump.

Comments