Lost for words? Try recession and suffering
Sunday 07 June 1998
Following the news, by and large, only adds to the frazzle. There's an avalanche of information without meaning. Take the Bank of England's decision on Thursday to raise interest rates from 7.25 to 7.5 per cent. It led to talk of recession and headlines like "Bank's rate rise prompts fury". But the stock market yawned at the decision and commentators praised it. So what did it signify?
Elsewhere during the week there were sideshows that might not have been sideshows. The Chancellor has a new chief mandarin, and Rupert Murdoch has a new Sun editor. The West received further evidence that Japan is on the brink of deflation. The run on the rouble and the Russian stock market bottomed out. But US Treasury Secretary Robert Rubin still declared that next week's meeting of G8 deputy finance ministers in Paris will focus on Russia. As a famous graffito found in a Saigon bar during the Vietnam War noted: "There is more information than there is stuff going on."
The simplest way to distil last week's news - assuming you can summon the detachment to try - is to ask a question: will there be a recession, and if so, when? On Friday for about five minutes I thought I divined the answer. When the excitement of the World Cup fades and we face winter again, there will be. The modest-by-historical-standards expansion under way since 1992 will grind to a halt. The further question is whether the landing will be soft or hard.
Such impoverished language, this - will the fall from the peak of the economic cycle be soft or hard? The sheer pace of successive events has outstripped our ability to find words even to describe them. The result is a two-tier reality: neutral, sanitised statements offering a conventional view of what is happening on the surface, with an unstated undertone of impending catastrophe.
Yet the doom-mongers look as powerless as the rest of us to speak with authority about the future. Convinced we are careering toward an almighty stock market crash that will usher in a Thirties-style depression, they have repeatedly cried wolf. PDFM's Tony Dye led City bears in the rush into cash in the wake of the Mexican peso crisis. That was 30 months ago.
Perhaps the end of the six-year economic expansion this winter will be neither soft nor hard but violent, yet survivable. Forget hard: think about whole markets, entire labour forces, being ripped from their foundations like barns in a tornado.
And yet, for all this prospective violence, pockets of the economy will no doubt prosper in the coming recession. Take Powell Duffryn. The strong pound between May 1997 and May 1998, plus exposure to Korea's shipbuilders and other Asian customers, could have stopped the engineering company's turnaround in its tracks. Instead the company focused on high-margin niche markets and moved production offshore. Last week it announced it has a pounds 100m war chest to spend on acquisitions as prices fall back from their peaks.
Take Germany and France. Spending on machinery, plants and tools in the first quarter rose 5.4 per cent in Germany and 1.1 per cent in France, it was announced last week. The heart of continental Europe is emerging from eight years of economic slumber. The US, with its New Economic Paradigm, by contrast looks vulnerable to that distinctly Old Economic Paradigm bugbear called inflation. In May US unemployment stood at 4.3 per cent, a 28-year low. It is not inconceivable that as EMU kicks in, there will be a stampede by international investors out of the dollar and into the euro.
Scanning the horizon, businessmen, investors and the general public will rely on standard economic indicators for news about the coming recession. The real issue, however, is how we weather the recession in comparison with other industrialised nations.
Since the 1950s we have lost ground in each downturn. This time round, the Government says, it's going to be different. Gordon Brown made it clear last week that he is sticking to New Labour's Third Way - going for a balanced budget over the lifetime of the economic cycle with the exception of extra funds for health and education. Striking this pose, Mr Brown was like some Scottish sea captain steaming down the Clyde bound for the North Atlantic in stormy February.
All but the most party political among us will root for Brown as he heads out to sea. For better or worse, we shall be in his boat for the duration of the next recession. We might as well paddle. Simultaneously, however, we must resist the pressure to stay on message. New Labour's project to boost the competitive position of UK plc in comparison with its trading partners needs far tougher criticism than it has had.
Last week the CBI hit out at the Government for introducing a minimum wage. The TUC hit out at it for extending the public spending cap through to the end of the parliament. If the Government is to hold the centre in the face of sound criticism from right and left, it must demonstrate it has the political imagination to live within the constraints imposed by a globalised economy without forfeiting its claim to be guardian of the weak and poor.
The immediate hurdle in this regard is the Government's plan for coal. Last week news was leaked of a deal to square the interests of the power- generating companies, consumers of electricity and RJB Mining while saving the jobs of the remaining miners. "Didn't come from us, guv," said one spin doctor of the trial balloon.
Whatever its provenance, the real thing - a plan for coal - is due to emerge from the DTI this month. The test of the plan will be whether it saves miners' jobs without undermining the integrity of the electricity market. If the plan does not square this circle - if there's a neo-Wilsonian fudge - one or the other will suffer: the coal miners who can still lay claim to being the soul of the Labour Party, or the market to which New Labour has pledged allegiance.
Then, as the Government loses credibility while girding its loins to take us through the coming recession, we shall all suffer.
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