Its answer has been to set out a five- year plan which not only sets out financial objectives but gives a much wider picture of the government's social aims.
The country is Japan. In the past two weeks much of the debate in Britain has been in terms of creating an alternative discipline on policy to sterling's membership of the exchange rate mechanism - things like monetary targets, maybe an inflation target, maybe a general exchange rate target. But this is a pretty narrow objective, an implicit second-best to the preferred solution of anchoring the pound to the mark.
In Japan this summer the government's economic planning agency completed a much more ambitious exercise. The government recognised that it had made serious mistakes because policy had not been sufficiently anchored during the latter 1980s, but fixing the currency was not an available option even it it had been an appropriate one.
So it took on itself the discipline of set ting out a five-year plan with not just economic objectives but targets for a range of social indicators too. The plan has received relatively little attention in Britain, but a provisional translation makes fascinating reading.
For example, our Treasury is wondering whether it should have an inflation target. Well, the Japanese have one and it is on page 70 of the English version of the plan. It has consumer prices increasing by no more than 2 per cent a year over the next five years, with wholesale prices increasing at an average rate of about 0.25 per cent.
The other big macro-economic numbers are for growth to average about 3.5 per cent - with domestic demand growing a little faster - and for unemployment to be about 2.25 per cent in 1996.
On things like monetary policy, the plan is wonderfully vague: 'Monetary policy will be administered flexibly and appropriately on the basis of promoting price stability with paying due attention
to the soundness of the economy.' Not much of a hostage to fortune there - any Chancellor since the war could have lived happily with that.
But when it comes to the objectives of the government's investment in infrastructure, there is enough detail to make a British government distinctly uneasy.
For example, in transport the plan includes specific targets for average traffic speeds - an increase from 23 to 30 kilometres per hour in urban areas.
The percentage of people within one hour of an airport is planned to rise from 80 to 85 per cent. The maximum time to get from a provincial city to one of the big metropolitan areas like Tokyo, Osaka or Sapporo is intended to come down from six hours to three hours 10 minutes.
There are a number of specific targets for improving the urban environment. The area of forest within one hour of densely-populated areas is supposed almost to double. There are targets for the percentage of urban area which is no more than 250 metres from a children's park, 500 metres from a regional park and so on. There are targets for urban by- passes, for landscaped roads, for the treatment of waste and sewage.
There are even targets for reducing the overcrowding on Tokyo's rail system, though these do not appear wildly ambitious. Overcrowding is supposed to come down from 200 to 180 per cent.
And, since the sub-title to the document is 'Sharing a better quality of life around the globe', there are targets for increasing the use of schools for adult education, providing nursing homes for the elderly, improving pavements and a host of other items of social capital, including the quality of housing stock.
Is there any point in all this? The answer is surely yes, for by setting down objectives in the form of a five-year plan the government is forced to think through its priorities in an ordered way. In Britain the idea of medium-term planning was discredited by the failure of the National Plan of George Brown in the middle 1960s and of the Medium-Term Financial Strategy of the 1980s.
To be sure, each political party sets out objectives in its manifesto, but no one seriously believes that the party, if elected, will do much of what it says. We are in the process of establishing performance targets for many parts of the public sector, but these are not pulled together so that performance can be easily set against the target.
This is not to suggest that Britain should copy this particular five-year plan. In some ways the Japanese plan is an example of how not to do it, for many of its statements are banal or disingenuous. Its comment on the trade surplus - 'Japan should continue to endevour to realise an external balance of payments that is internationally harmonised' - would raise a hollow laugh in the US, where anti-Jap anese sentiment has been fanned by the way Japan has blocked imports.
But something will have to be drawn up to replace Britain's MTFS. Something has to be done to rebuild the credibility of the Treasury's economic forecasts. And something has to replace the ERM as an anchor for monetary policy.
The exercise of setting down five-year targets for inflation, growth, unemployment, the balance of payments, public spending and so on would force the Government to think through what might happen rather than what it hopes will happen, and then plan accordingly.
In the past the Government has tended to regard the publication of economic information rather as though it were giving away state secrets - not that the forecasts it has published have been of sufficient quality to give anyone much commercial advantage. Now that not just its forecasts but its whole policy has been blown to bits it would be wiser to publish more information, albeit with a suitable public health warning as to its quality.
The central point is that no one is very impressed by the Treasury, but everyone wants to know what the Treasury's new policy is. An honest five-year economic outlook would give the country, and the markets, a base from which they could confront the difficulties ahead.Reuse content