View from New York: The earth moved most for Hanson

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The Independent Online
California is turning was the unfortunate title of the Salomon Brothers research report that arrived in the mail exactly one week ago, just as the earth began to move three times to the west. 'The biggest risk in the outlook for California this year', the optimistic analysts warned, was from over- spending governments.

Last week was an unlucky one for all sorts of Americans - the earthquake and aftershocks in Los Angeles, record cold in the rest of the country, and electricity shortages that shut down Washington on the anniversary of Bill Clinton's inauguration - but it was not a total write-off for some.

Hanson Industries, for example, clearly seems to have had forces both natural and market on its side last week, the eve of its parent's annual general meeting on Wednesday. In California, the quake not only spared its many LA operations, but managed to generate plenty of new business. The dollars 30bn ( pounds 21bn) task of repairing the country's busiest freeways and rehousing the San Fernando Valley means huge demand for its Grove cranes division, for Beazer Aggregates, America's largest supplier of construction materials like sand, gravel and asphalt, and for Beazer Homes' housing developments in the LA basin.

In 44 other American states, the frigid temperatures meant higher prices for Suburban Propane, the big gas distribution company Hanson acquired last year as part of its purchase of Quantum Chemical. Even the weather-related brownouts in Washington benefited Hanson, which owns Peabody Holding, America's largest coal producer. Power utilities, their stockpiles depleted by last year's miners' strike, 'wanted as much coal as they could lay their hands on,' said Hanson Industries' spokesman, Mickey Foster.

As if that was not enough, the world's leading makers of polyethylene chose last week to agree on a five-cent-a-pound increase in the price of their product. Polyethylene is one of Quantum's principal businesses; each penny increase in its price adds an estimated dollars 40m to Hanson's bottom line.

The result was a seven-day rise in Hanson's share price of almost 5 per cent, to 279 1/2 p from 268p, where it had been languishing for the better part of a year.


Not all Hanson's success should be put down to the misfortunes of others; Hanson foresaw a plastics rebound last summer when it bought Quantum - like most of its US operations, a 'GNP business' whose profits are predicated on economic recovery. But much of the boom Hanson is now enjoying, thanks to the rush to rebuild a crumbling public infrastructure, should not have required the earth to move. Indeed, it was supposed to have begun when Mr Clinton took office a year ago with his pledge to 'jump-start' the US economy.

A year ago last week, companies like Hanson were eagerly awaiting details of the president-elect's rumoured dollars 30bn economic stimulus package. US markets, taxpayers and most other businesses, meanwhile, were bracing for the arrival in office of a 'tax-and-spend' Democrat whose promises - including a tax cut for the middle class - totalled hundreds of billions of dollars. The day Mr Clinton took office, on 20 January, the Dow Jones Industrial Average fell to what was to be its low point of the year, 3,241.95.

Last week, or course, it crossed the 3,900 mark. In the end, Clintonomics surprised everyone - and no one more so than the 'bond vigilantes' who stalked Wall Street, ready to cripple any expansionary plans.

The new president named fiscal conservatives like Lloyd Bentsen, Leon Panetta and Robert Rubin to key economic posts in his cabinet, and endorsed both North American free trade and world trade liberalisation. And instead of wielding the old Keynesian tools, he opted instead to make reduction of the ballooning US budget deficit his priority. On Saturday he forecast it would fall below dollars 180bn in fiscal year 1995.

The bond market found the plan credible, as did the US Federal Reserve, which obliged by keeping monetary policy lax through his first year. Interest rates in the US plunged to the lowest point in a quarter century, prompting a once- in-a-generation bond rally and propping up equity markets, and thereby creating huge capital gains for investors.

To the chagrin of some, Mr Clinton's stimulus package, though scaled back to dollars 16.3bn, went down to an early defeat. But the outcome of his dollars 433bn deficit-reduction plan - a tripling of the growth rate of the American economy to 4 per cent - has made it unnecessary, just as the boom has made the impact of his much-maligned dollars 240bn tax increase negligible.

'Instead of proving a big drag on economic recovery, as the Republican Cassandras predicted, the taxes ultimately helped to get interest rates down, thereby stimulating growth,' marvels one American economist.


By most measures, then, the gamble of Clintonomics has paid off handsomely, helping to cement the economic recovery in the US and winning the administration an unexpected measure of support on Wall Street.

Whether he will be as fortunate with 'Clintonomics II' is less clear. Tomorrow evening, Mr Clinton will deliver his State of the Union address, laying out his legislative plans for the coming year. Economists say the President's theme is expected to shift to the notion of 'economic security', both for individual American citizens and the country as a whole.

Besides health care, Mr Clinton will propose new schemes to improve both the efficiency of the US labour market - a 're-employment' plan to replace existing unemployment insurance and retraining programmes, a German- inspired 'school-to-work' apprenticeship training plan, and a proposal to make employee pensions portable - and America's international 'competitiveness' - with policies ranging from government support for high technology to tougher export promotion and fair-trade measures.

It is an agenda that has once again raised red flags in the business community, though not so much from the bond markets this time as from conservative economists, small business owners and liberal trade ideologues. But they also complain that such intervention will be a drag on growth, and rob the US economy of its much- envied flexibility.

US Labor Secretary Robert Reich, the architect of the second- year strategy, counters that such structural issues have to be addressed if the US is to consolidate its productivity gains of the past year. US workers have to be equipped to win high-wage jobs in the face of global competition, he argues.

Not surprisingly, Mr Clinton's critics are unconvinced. 'It reminds me of pre-Thatcher Britain,' one Republican pollster said in this week's edition of Business Week magazine.

(Photograph omitted)