Jeremy Warner's Outlook: Economy gives Labour another ticket to ride

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The Independent Online

It's the economy, stupid. Those still puzzled as to why a government which led us into an illegal war from which it may take years to extract ourselves - and whose prime minister and chancellor are so much at each other's throats that they can't even stand to be in the same room together - is still so far ahead in the polls, should look no further than yesterday's clutch of employment data.

It's the economy, stupid. Those still puzzled as to why a government which led us into an illegal war from which it may take years to extract ourselves - and whose prime minister and chancellor are so much at each other's throats that they can't even stand to be in the same room together - is still so far ahead in the polls, should look no further than yesterday's clutch of employment data.

Already tight as tight can be, the labour market tightened even further in the three months to November when 100,000 jobs were created and the claimant count sunk to its lowest level in 29 years. The number of hours worked also reached a new record, while the number of those classified as economically inactive - unable or unwilling to look for work - is again falling. Many of the new jobs are public sector, of course, but with an election looming, Labour isn't going to count that as a negative and to the average voter, it scarcely seems to matter.

Nor will it be just Michael Howard, the leader of the Opposition, who will be weeping at the sight of it. As the tonic of his African tour begins to fade, the anger Gordon Brown feels at not yet having moved up to the PM's job will come flooding back. Labour's greatest achievement in the eight years it has been in Government is that it hasn't screwed up the economy, for which Mr Brown is understandably keen to take most of the credit. Yet it is Tony Blair who gets the glory of a third term.

Still, not everything on the economic front is conspiring towards another landslide victory. Once upon a time, the Government would have been cutting interest rates at this stage of the electoral cycle, the more so as with the economy slowing, some sort of a case can be made for it. Having ceded control of monetary policy to an independent Bank of England, ministers cannot now count on that happening.

The strength of yesterday's numbers, in combination with figures earlier this week showing an unexpected uptick in inflation, means that the chances of a rate cut any time soon have again receded sharply. Indeed, a rate rise now seems more likely.

This is more especially the case as the anecdotal evidence from estate agents and retailers is that things have picked up sharply since the turn of the year. It is as if people have absorbed along with their Christmas lunch the welter of stories saying that rates have peaked and have returned to their free spending ways. With annual growth in earnings back at 4.5 per cent for November - a level which the Bank of England regards as the maximum consistent with meeting its inflation target - my money's back on interest rates reaching 5 per cent before they start going lower again.

Unilever reform

Soon after Shell revealed that it had been substantially overstating its oil reserves, a débâcle widely attributed to lax corporate governance resulting from a split board and dual domicile, I asked Niall FitzGerald, then the co-chairman of Unilever, whether the Anglo-Dutch foods and detergents Goliath might also be forced to reconsider its structure, and in particular the oddity of having two chairmen.

Absolutely not, he insisted. Having two executive chairmen of equal standing was the best form of corporate governance there was, as each one oversaw the other, never mind that it might also lead to paralysis of action and confusion of command. Since then, sales growth has stalled and Mr FitzGerald has moved on. Moving to a more conventional structure, with a chairman and chief executive, is today very much up for reconsideration, and may even be announced with the annual results next month. One obvious way of achieving this would be for the more senior of the two chairmen, Antony Burgmans, to assume the unified role as chairman, while the other, Patrick Cescau, would become chief executive.

Most people would think of this as little more than a cosmetic change, and indeed it would be hard for Mr Burgmans, having enjoyed a high degree of executive power, to accept the more limited role as chairman the new job would entail. But in time the change might have some effect. In any case, the present structure plainly isn't working. Much progress was made under Mr FitzGerald's Path to Growth strategy in streamlining the company, reducing its costs, rationalising its brands and transforming it from a dysfunctional collection of national fiefdoms into a more unified whole.

But the recent hiatus in top-line growth, and the plainly superior performance across almost all measures of Unilever's main commercial enemy, Procter & Gamble, shows that there is still much to be done. By all accounts, Mr Cescau has got both the will and the energy to push through the necessary top down reforms. The fact that he's a Unilever lifer might seem to count against him, but first things first. Not in a million years is a company as proud as Unilever going to appoint an outsider to the role of chief executive, nor unless things became dramatically worse would it be wise to do so. Unilever has plateaued, but it is not yet in a state of crisis. For the time being, evolution rather than revolution remains the order of the day.

Airbus super-jumbo

The idea that Airbus might serve as a template for how the rest of European industry should be structured will have President George W Bush choking on his pretzels. Brussels and Washington have only just escaped a damaging trade war over aircraft subsidies and now there's Jacques Chirac suggesting what a wonderful place Europe would be if its telecoms, energy and even drugs industries were run along similar lines to Airbus.

Admittedly, the French President did not spell out whether this would entail the same kind of launch aid that Airbus enjoys, but it is in the Gallic nature of things to see state support for key industries as au naturel. The latest product of that largesse, courtesy of the taxpayers of Britain, France, Germany and Spain, was on display in Toulouse this week as Airbus rolled out its first A380 super-jumbo. Everything about the plane is big and that includes the £2.5bn of subsidy the aircraft is receiving.

Airbus prefers to call it refundable launch aid but that is an oxymoron because the money gets repaid in full only if the aircraft is a success. To break-even on its own investment, Airbus needs to sell 250 of the A380. To repay the four governments it needs to shift 700. To count as a real commercial success, Airbus needs to sell twice that number. So far it has firm orders for 149. Airbus points to the A320, which was launched on a business case that sales would reach 700. They now stand at more than 3,000. Not only has the original launch aid been repaid, but taxpayers are quids in because Airbus continues to pay a levy on each new delivery ad infinitum.

However, the two aircraft are not comparable. The A320 was built to compete in an existing market against the Boeing 737. The A380 is defining an entirely new market - one in which passengers will be happy to be crowded as many as 800 on a single aircraft and ferried hub to hub from where they will fly on a smaller aircraft to their final destination.

To witness the exuberance and sheer self-confidence on display in Toulouse, it is hard to believe that the A380 could fail. But M. Chirac could surely have picked a better analogy when he prophesied that it would go down in aviation industry in the same way that Concorde did. Boeing continues to cling to the belief that the A380 will prove to be not a super-jumbo but a super-Dumbo - a white elephant of the skies.

If it is wrong, there will be a serious price to pay in Seattle and American dominance of the skies will be broken once and for all. It's only a shame that the European technological success story the super-jumbo plainly amounts to isn't replicated in the wider performance of the European economy. You don't have to look far for the reasons. Europeans won't spend, and the reason they won't spend is the inflexibility of their economies. The super-jumbo is a triumph of state-funded co-operation. Yet that's no guarantee of commercial success, nor is the creation of such European champions capable of solving France and Germany's unemployment problem.

jeremy.warner@independent.co.uk

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