Go away, ye merchants of gloom, your wares are not needed here

Let the good times roll
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The Independent Online
ARE YOU losing sleep over the decimation of British manufacturing industry by the strong pound? Alarmed about the impact of the millennium bug on the economy? Worried about the slump in Asia and the impending Japanese economic meltdown? Concerned that rampant global capitalism is destroying social order as it sweeps triumphant around the planet? If so, you have plenty of company.

Pessimistic punditry is just about the biggest growth industry around. Publishers are pouring out books with titles like The Global Trap and False Dawn, consultants are cashing in on the Year 2000 conference circuit and even insolvency practitioners, the professional vultures of capitalism, are enjoying an export boom, thanks to the rising number of bankruptcies in Asia.

The gloom merchants are selling into a ready market. Unfortunately, it is a market rooted in three parts ignorance and one part loss of faith in the idea of progress. The pundits are the quack doctors of economic medicine, relying on the fact that most of us have absolutely no idea whether there is any real evidence for their apocalyptic diagnosis. Neither, for that matter, do many of the medicine men themselves.

Take this week's hot topic, as the Bank of England's Monetary Policy Committee meets tomorrow morning to debate the level of interest rates, namely the state of manufacturing as a result of the strong pound. All week, industry lobbyists and excitable journalists have been warning about the danger of a plunge into recession. Many businessmen want the Bank of England to cut the cost of loans - rather than leaving it unchanged or raising it, as the Bank has been contemplating - because they think this would rescue the economy from catastrophe.

Here is an example of hysteria that goes easy on the facts. While no sensible economist would deny that there is a risk of recession this year, perhaps a one-in-six or one-in-four chance, the odds are that what we will actually get is a bit of a slowdown. The output of manufacturing industry has risen, barely, in the latest two months for which we have figures, having fallen, slightly, in the three months before that. In other words, the strong pound is keeping production in some parts of industry flat.

Total manufacturing output accounts for just over a fifth of the economy, and half of that fifth is still expanding. So are the other four-fifths of the economy. The truth is that the high value of the pound is causing real trauma in some industries but generating a lot of hot air in the rest, where high profit margins have had to be trimmed to keep sales growing.

Then there's the Asian meltdown and its catastrophic implications. Without question, the financial crisis in Japan and South East Asia will hit the world economy. It will wipe out some exports and cost some jobs. But getting a grip on the scale of the spillover does require a brush with some numbers. The region accounted for 9.4 per cent of British exports last year, for example. Big enough but not overwhelming.

There is not even all that much Asian investment in Britain. Japan is the seventh biggest investor in Britain, well behind the Netherlands and Australia, not to mention the US and Germany. No other individual Asian country has taken a big enough stake in the UK to register in the list. We simply exaggerate its importance because, thanks mainly to large dollops of public money, the Asian investments have created jobs in greenfield sites. The loss of some inefficient jobs-for-cash schemes like this need not be a body blow to the economy.

As for the impending catastrophe of global capitalism, its propagandists have a breathtaking disregard for evidence. Even as prominent an intellectual as John Gray, Professor of European Thought at the London School of Economics, feels qualified to write a book predicting a gloomy future for the world economy with scarcely a single number from cover to cover apart from the ones at the bottom of every page.

Is capitalism in crisis? If there is a crisis anywhere it must be in Asia. South Korea, for example, is in a recession from which it is unlikely to recover until late next year. Yet this follows growth of about 10 per cent a year during the 1980s and 7 to 8 per cent a year in the 1990s. Real living standards for Koreans have improved beyond recognition over the two decades of high-octane expansion fuelled by trade and markets. Whatever the setbacks and inequalities - and they are just as real - improvements in living standards have remained the hallmark of capitalism, from the ultra-free market United States to statist Asian countries.

The people who bet their money on the health of the system, investors in the stockmarket, certainly do not spy a crisis. Share prices have been hitting new records. They are almost certainly over-optimistic - there is every sign that this is a classic stockmarket bubble which will eventually burst. It might even burst in the next few weeks. When it does, the catastrophe theorists will spew out a fresh torrent of gloom.

But the investors are fundamentally right. Business has been good and steady for half a decade, and it will be again. With the end of the Cold War and the loss of faith in planned economies, capitalism has opportunities for expansion like none it has seen before. Economies recover from recessions, increasingly helped rather than hindered by central bankers and politicians. The ability of people to work, trade and improve their lot has proved incredibly robust over decades, wherever they have been allowed to do so.

Perhaps the real reason quack economics gets such a wide hearing these days is that many people have lost confidence in the possibility of further progress, despite the hard evidence of higher living standards. That would not be surprising in a more uncertain world, where technology is closing down some industries and opening up new ones, where the state of the environment poses a new and unknown kind of threat to well-being, and where the good politicians are the ones who know how much they don't know rather than the ones full of strident certainties.

There could be no better symbol of a loss of faith in economic progress than the millennium bug, which might cause millions of computers worldwide to crash when the clock ticks past midnight on 31 December next year. If we cannot keep the computers, the nuts and bolts of the world economy, working, surely there must be a crisis of capitalism - and one we can even put in the diary?

As a member of the beleaguered minority of semi-optimistic pundits, I will hazard a prediction. It is that metaphorical time-bombs like the year 2000 problem do not explode, because companies are already busy defusing them. Capitalism has a future in the 21st century.