In a note this week, Michael Saunders of Salomon Smith Barney, the investment bank, makes this link. He notes grimly that the manufacturers which survived the 1981-82 recession were leaner and fitter, but there were so few of them that output did not regain its 1978 level until 1987. You could get five German marks for your pound in 1981 compared with just over DM3 now. But British inflation has been so much higher than overseas inflation in the intervening period that the real exchange rate is now approaching the same level as in 1982.
The same arguments about an overvalued exchange rate were deployed by industry in 1991-1992, before the pound was driven out of the exchange rate mechanism. There were trebles all round among the captains and sub- lieutenants of industry after "Black Wednesday", celebrating what in any other country would have been seen as a national economic humiliation.
So far this time around manufacturing output has been flat, not plummeting, and employment in industry has been, if anything, increasing. But businessmen say the exchange rate needs to fall back to something like DM2.60 - a 15 per cent drop from its current level - if catastrophe is to be averted. In the past three months the first actual evidence backing their claim has emerged, with falling export volumes and a widening trade deficit.
There is no question that an overvalued exchange rate causes economic pain and is something that exporters might reasonably want to avoid. What is less reasonable, in the case of UK plc, is the fact that the complaints about an overvalued exchange rate recur every five years despite the fact that the pound has fallen sharply in value over the years. It has indeed fallen much less in real terms but this is in large part because the constant nominal depreciation is counteracted by British inflation remaining higher than overseas inflation. The inflation problem is itself fed by devaluation, which raises import prices and tends to feed into a vicious circle of higher wage and price inflation.
This is no way to run an economy. Although they have complained from time to time, it is impossible to imagine German businesses whingeing constantly, British-style, because of the strong mark. Quite the reverse: German businessmen have seen a strong mark as a vote of confidence in the strength of the economy and its manufacturing base.
The difference in attitude can be explained by different business strategies. According to a report published earlier this week by the Employment Policy Institute, many British companies opt to "pile 'em high and sell 'em cheap". This can be a completely rational choice for firms with a low-income customer base and unsatisfactory industrial relations or workplace structures. What's more, it is a deep-rooted strategy. In his marvellous history of the post-War Labour government, Never Again, Peter Hennessy quotes Keynes's damning April 1945 assessment of British industry:
"When it comes to making a shirt or steel billet ... we have to admit ourselves beaten by both the dear labour of America and the cheap labour of Asia or Europe ... If by some sad geographical slip the American air force (it is too late now to hope for much from the enemy) were to destroy every factory on the North-east coast and in Lancashire, at an hour when the directors were sitting there and no one else, we should have nothing to fear."
What more telling comment on the performance of British management over the past 50 years could there be than to note that "Europe" would now count with America as a dear-labour, high-value producer while the UK would not? At no point in the past half century has the great mass of British business made an effort to switch from the low-skill, low-value track that means exports have to compete on price alone to the high-skill, high-value track that would make quality some defence against an exchange rate appreciation. It is, sadly, still very true that the strong pound makes it much harder for British companies to compete in overseas markets because so many have only the one string to their competitiveness bow. They have reacted as they normally do: first cut profit margins on exports; second, complain.
If it were easy to change strategies, more firms would have done so. Clearly, a web of economic, institutional and cultural factors has trapped Britain in its bottom of the market niche. Successive governments have identified the problem without being able to solve it.
Does that make it necessary now for the Bank of England to alter course and cut interest rates? Absolutely not.
For one thing, the link between the exchange rate and fiscal or monetary policy is simply not as mechanical as most people seem to imagine. A cut in interest rates, or an easier Budget, might even have boosted the pound if the financial markets concluded that looser policy now would mean much tighter policy in future. Besides, a lot of the reason for sterling's appreciation lies in the weaker state of the continental economies and the approach of economic and monetary union (EMU), both outside the control of the Bank or the Chancellor.
More important, surely, is it worth trying to avoid going through the same old loop once again? For the first time in a generation we have in place macro-economic policies that justify a strong and stable exchange rate. The pound will fall from its current giddy level at some point this year because an emerging balance of payments deficit reflects the momentum of inflationary pressure in the economy. And by the end of the year German interest rates will have to climb because of the approaching start of the single currency.
But a nearly right level of interest rates in the UK and a tough Budget do mean this cycle will be more muted than previous ones. Then it will be up to exporters themselves to figure out how best to compete in a stable world where a depreciation of the pound does not come to the rescue once every business cycle, only for its benefits to be whittled away within five years by the resulting inflation.