Outlook: Can ITV be as imaginative in its choice of chairman as C4?

Grand Old Duke; Unproductive talk; Unproductive talk
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Ofcom has made a surprisingly good choice in Luke Johnson as the new chairman of Channel 4 - surprising because no one would have predicted that a such a monolithic government regulator would have made such an imaginative and high-risk appointment.

Mr Johnson is not obviously well qualified for the position and if he's ever had the "passion for public service broadcasting" referred to in yesterday's press release, he's certainly kept it well hidden. His father, the right wing polemicist, Paul Johnson, once charged Michael Grade, then chief executive of Channel 4, with being TV's pornographer in chief. Yet Mr Johnson junior was once a media analyst in the City and his entrepreneurial credentials cannot be faulted.

Channel 4 has never been short on innovation, but it's commercial and strategic attributes leave something to be desired. Its forays into digital TV have been a disaster and though it has broadly held its own in the TV advertising market, it's been badly hit by the downturn and it is not clear what its future might be in an era of multi-channel TV.

It remains to be seen whether ITV can be as imaginative in its choice of chairman as Channel 4. Having axed Michael Green, shareholders seem to want someone safe and boring. Yet we could be in luck. An excellent compromise between safe pair of hands and brilliant businessman would be Lord MacLaurin, the chief executive who put Tesco on the map. If he wants it, the job is his for the taking, which would of course, in these Higgsian correct days, leave a vacancy at Vodafone, where he is currently chairman but restless to move on. The game of musical chairs continues.

Grand Old Duke

If the Federal Reserve raises US interest rates after today's meeting of the Open Markets Committee, the stock market will bomb and I promise to eat my hat. Even if there were movement to a tightening bias in policy it would be a profound shock to markets, so insistent has Alan Greenspan been in saying that there is no need for a US rates rise just yet.

So if not now, when? The consensus is that it won't be until after the presidential election in November. The theory goes that with the recovery yet to produce anything meaningful in the way of jobs creation in the US, it wouldn't be politically acceptable to do so before then.

In point of fact, it's a bit of an urban myth that the Fed never raises rates in an election year. Short-term rates have been raised in six of the last 11 election years, most recently in 2000 when the rate was raised from from 5.3 per cent to 6.5 per cent in what proved to be the most closely fought presidential election of the 20th century.

However, it may be true that the Fed deliberately maintains a looser bias in policy in the run up to an election than it would otherwise for fear of being accused of upsetting the political applecart. The last thing the Fed wants is to have its rates decisions made into a political issue. Yet whatever the cause of the present inertia, it's as plain as a pike staff that US rates are being kept too low for too long. Mr Greenspan says he doesn't need to raise rates while inflation isso low and the recovery so fragile. Hardly anyone outside the US agrees.

Look beneath the still benign headline figure for inflation, and rather like Britain, many parts of the US economy are already experiencing quite serious levels of inflation. It is only the still deflating costs of goods which keeps the overall rate low. Mr Greenspan thinks still relatively high levels of unemployment and productivity growth will keep prices in abeyance for some time yet, but his analysis is not supported by the evidence of past economic cycles. This one would have to be quite different for him to be right.

Both fiscal and monetary policy are far looser than they should be given the scale of the economic rebound under way in the US. These things are on a long fuse, but the eventual consequence of America's aggressively pro-growth policies is highly likely to be a powerful inflationary surge right through the economy.

The Fed has a history of allowing present circumstance to dictate its interest rate decisions, with the result that it persistently lags events rather pre-empts them. It cut rates too sharply in response to the Long-Term Capital Management crisis in 1998, helping to fuel the latter states of the bubble. It then raised them too sharply in response to the bubble, causing the economy to slow too quickly.

Mr Greenspan now seems to be making the same mistake in reverse. His tardiness in acting means that like the Grand Old Duke of York, he'll eventually and painfully have to march rates all the way up to the top of the hill again. If he'd acted sooner, he would have saved himself the trouble. Just as the European Central Bank can be accused of being too cautious, the Fed is too gung-ho.

Unproductive talk

Rightly or wrongly, Gordon Brown reckons he's fixed most of what needs to be done in the UK economy, but even by his own admission, one thing alludes him. British levels of productivity growth remain stubbornly below those of America, Asia and even the rest of Europe. Can this deficiency be corrected by public policy too? For the Chancellor it's become a fixation verging on the obsessive, yet everything he's tried so far - from a beefed up competition policy to tax breaks for innovation and small business - has failed to raise Britain's game.

This week's Treasury sponsored business summit might have served some purpose in making the Government more aware of the adverse consequences for business of rising levels of taxation and red tape, but in other respects it was just a lot of hot air. British people are never going to treat entrepreneurs like sports stars, nor are they likely to idolise the grey suits running most of our leading companies. Even in America, such an idea would be regarded as laughable, and in a country as naturally irreverent as Britain, Mr Brown's suggestion that hero worship of our business leaders might improve our economy sounds simply crass. Could he so quickly have forgotten about Enron?

The problem of low levels of productivity growth has very little to do any supposed cultural deficit in entrepreneurial admiration. The rising burden of tax and red tape might have rather more to do with it, though the high productivity levels of Europe, where the burden is greater still, rather suggests otherwise. Historically low levels of investment are undoubtedly part of the problem too. However, there's nothing to suggest Britain has proportionately invested any less heavily in the newer technologies of the information age than anywhere else, yet still this has failed to lift productivity growth beyond trend rates.

Quite a bit of the answer must lie in the ever expanding size of the public sector, where market disciplines don't apply. Even in private companies, productivity growth is hard to maintain when they are taking on more workers, but it is virtually impossible in the public sector, where output is much more difficult to measure and improve.

The unvarnished truth is that much of America's "productivity miracle" is being achieved by firing people, and by the Wal-Martisation of large elements of its retail sector. Steep rises in productivity are easily achieved when work forces are sharply reduced for the same level of output, which is roughly what happened in the US during the downturn.

Meanwhile Wal-Mart and other out of town sheds are putting less efficient retailers out of business on a growing scale, replacing relatively well paid jobs with fewer low paid ones in the process. Wal-Mart's efficiency drive is now so extreme that it has taken to locking its shelf stackers in the store overnight so as to save on the costs of security.

Is this really what Mr Brown wants for Britain - a sharp reduction in employment and the concreting over of Britain's green and pleasant land as Wal-Mart, Tesco and others bulldoze all other retailers before them? I don't think so. Yet it is what the Chancellor must accept if he wants US-style productivity growth.

jeremy.warner@independent.co.uk

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