James Moore: The trouble with Romney recipe for growth is his friends get biggest slice

Outlook: The US is close to fulfilling its energy requirements, further boosting growth
  • @TheIndyBusiness

Today's presidential election will principally be decided on the United States economy, and which of the two candidates the all-important independent voters who will decide the result feel will be the best steward of it.

Of course, when it comes to the economy the USA is doing rather well, certainly if you look at its GDP numbers and compare them with what we've been seeing in this country, not to mention the eurozone. Annual growth of between 1.5 and 2 per cent is pretty good, all things considered.

The Centre for Economics and Business Research today hands much of the credit to the monetary stimulus provided by the US Federal Reserve which, it argues, is working rather better than the Bank of England's equivalent.

This can be seen in the way bank lending, stalled on this side of the pond, is growing for business and households over there. Even mortgages have started to pick up.

The US is also benefiting from getting close to being able to fulfil its own energy requirements. As a result energy is relatively cheap, further boosting growth.

The fly in the ointment is the country's enormous budget deficit, which will have to be addressed after the election. A second-term President Barack Obama may rely on a mix of tax rises and spending cuts, if a deal can be reached with an extreme and resentful Republican House of Representatives.

Mitt Romney, by contrast, has at least said he will try something altogether more radical: savage cuts in Government spending together with tax cuts that will likely be of most benefit to the wealthiest. Oh, and he'll ask the Fed's chairman Ben Bernanke to quit, which could mean an end to the monetary stimulus many on the US right dislike.

Other than a short-term boost to the Dow (on account of Wall Street having one of its own in the White House) Douglas McWilliams, the CEBR's chief executive, argues that it will take time for these sort of measures to have an impact on America's economic performance.

But, he says "the option of low spending and low taxation applied in a major Western economy" would be "an exciting experiment".

That is the sort of thing you might expect an economist who won't be on the receiving end of the downside of such an experiment to say. The bonfire of America's already very limited social safety net will have a brutal impact on the country's oft-forgotten poor. As for the extra growth that may — may — be generated, who will benefit from it?

Those independent voters might very well find that it won't be them unless they are, along with Mr Romney, part of the 1 per cent at the top of American society. After all, during the Republican-dominated Noughties US GDP grew every year but one until 2008, sometimes by as much as 4 per cent. But median household incomes did not. By 2008, middle-income households were making less, adjusted for inflation, than they did in 1999. The same cannot be said for those at the top.

Even now the US economy is growing, ordinary Americans aren't really feeling it, which partly explains the battle President Obama has faced.

This is something that ought to be borne in mind on this side of the Atlantic, where there is much debate on how to boost GDP growth. Growth is only really worth having if it percolates throughout society and benefits everyone.

Just look at South Africa: what growth the country has enjoyed has not been widely shared. The consequences have been bloody, as the families of dead miners, striking as a result of being left out of it, can testify.

Governance rules no use if directors are weak

Britain's corporate governance code today celebrates its 20th anniversary and the Financial Reporting Council, which polices it, has published a series of essays to mark the occasion.

Not much of a pressie, you might think, but the consensus (as you might expect) is that the code's core principle of "comply or explain" has held up well and is a better way for things to be conducted than an inflexible rules-based approach.

In the code's favour, it has generally improved governance, and pointed the way for many similar arrangements overseas.

However, it is facing challenges like never before. For a start there are the natural resources companies that have come to London and thumbed their noses at the code while pouring investors' money down a deeper pit than many of their mines.

Some of that money has come from tracker funds, favoured by big pension schemes and small investors alike because they are cheap and easy to understand.

They have been forced to invest in these mining companies by dint of their inclusion in Britain's stock-market indices. This could be said to be a failing of the funds. But it could just as easily be a failing of London's regulatory set-up, the code included. Would these companies have come if the code demanded their compliance?

On the other hand, even had the code's provisions been made statutory it wouldn't have done anything to prevent some of the really nasty failures we have seen in recent years. Royal Bank of Scotland had an independent chairman and a majority of independent directors. They didn't do their jobs and allowed an over-mighty chief executive to drive the business off a cliff.

It's not much good complying with the letter of corporate governance best practice when the independent directors you appoint either can't or won't exercise their responsibilities. Time and again non-executive directors have failed when asked to step up to the plate, most recently in some of the absurd pay packages they have waved through in the teeth of resistance from their shareholders.

Perhaps they need a code to govern their conduct?