The world frenzy is claiming its victims

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The Independent Online
EVERYTHING is being tested, every part of the world structure. When Chris Patten went to Hong Kong, he left a nation in crisis and arrived in a city in crisis. The world has something of the character of the French Revolution as described by Carlyle, a quality of frenzy in which individuals suddenly appear, seem to play an important but momentary role, and are then swallowed up and thrown like discarded dolls into the toybox of history. Now a Gorbachev, now a Kinnock, now a Perot; each plays a part, is defeated, retires.

In the East, Communism has already been tested to destruction - although not yet destroyed in China. Communism is the more rigid and weaker of the two world orders, and its overthrow was at first seen as the victory, even the permanent victory, of democracy or capitalism, or whatever one chooses to call it.

It was seen as the final victory of the West, but the West itself is in decline, losing economic advantage to the rapid growth of Asia, unable to exert its military or political power except in special, narrowly defined, circumstances. The West is uneasily conscious of the alienation of its own people, of the poor who riot in Los Angeles and Bristol, of the workers who have to be cleared by tanks off the French autoroutes, of the quiet citizens who feel distanced and made powerless by the self-interest of governments and bureaucracies.

The agencies of power in the West feel the challenge to their authority. The Japanese stock market no longer follows the conductor's baton of the financial authorities. In the most competitive industrial nation in the world, share prices fall by 60 per cent. Paper is seen for what it is, mere paper.

Real property, homes, office buildings, shops, fall in price by 30 per cent; yet property is still unsaleable and seems likely to fall by another 30 per cent, perhaps more. The Tokyo boom is exploded like the Dutch tulip bubble of the 1630s or the South Sea and Mississippi bubbles of 1720, or the Wall Street bubble of 1929. This explosion may portend economic depression before there is new confidence in Japan.

The United States' system is being tested. The four years of the Bush presidency are the worst four years for the US economy since the presidency of Herbert Hoover in the early Thirties. After Hoover was defeated in 1932 the Republicans were out of office for 20 years. Ross Perot goes up like a rocket, attracting no less than a third of American voters to support a campaign that does not exist; he comes down like the stick, but the discontent, demand for change and the alienated voters are still there. Can President George Bush be re-elected if the American economy does not recover strongly in the next few weeks? All the signs are that such recovery as there has been is weakening.

So the Republican control of the White House, which has given them five of the past six elections, is being tested, perhaps to destruction. In the US and in Britain the left-wing parties choose new leaders, and find them on the right wing. These parties are tired of losing elections - the Labour Party has lost four in a row. Both new leaders describe themselves as the candidates of change, but they are really fencing for an opening, dependent on the party in power being defeated by the weakening of the world economy. The virtue of the new leaders is that they are moderates who will not frighten away voters who are not people of the left at all.

Bill Clinton is at first able to gather in many of those who supported Ross Perot. Perhaps a simple national determination to reject George Bush's failure will elect Mr Clinton in November. That is certainly the mood in July. The Bush campaign will paint Mr Clinton as everything bad, a bad husband, a bad governor, a bad character, but this will not suffice if the people think Mr Bush has been a bad president.

In Britain, the election is not due until 1997, a long time for John Smith to wait. But the crisis is already present. The April Conservative victory is already forgotten by the public. Was it the last victory of a Conservative cycle that was already in decline? That is what many Conservatives fear, although they do not fear John Smith.

The crisis that is testing political authority in Tokyo and Washington is testing authority in London as well. John Major has committed himself absolutely to the exchange rate mechanism (ERM) and the present value of the pound, a personal commitment that the past two devaluation prime ministers, Clement Attlee in 1947 and Harold Wilson in 1967 were too cautious to make.

There are doubts everywhere, in the press, among economists - where Professor Wynne Godley, the best forecaster of the post-Keynesian school, and Professor Tim Congden, the best monetarist forecaster, are in unusual agreement - on the Conservative back benches, even on the front benches, in the Treasury, in the Cabinet itself. The Prime Minister is not isolated; there are others who stand with him on the burning deck, but he is exposed. If Britain has to leave the ERM, he will have been all too visibly defeated. Like Anthony Eden in the 1956 Suez crisis, he will have made himself responsible as the chief architect of a failed policy.

The ERM is being tested not only in Britain but also in Italy, where unemployment is higher and public finance is far weaker. Even in Germany itself unification has damaged the best post-war financial record in Europe. Germany may now move into recession as export markets are captured by the cheapened dollar and the ever- competitive yen.

In the European Community as a whole, unemployment has reached almost 10 per cent of the workforce and is still rising. For Britain the recession has lasted more than two years already; forecasters are now expecting a third and fearing a fourth. The ERM may be blown apart by these pressures as the gold standard was blown apart by similar pressures in 1931. Fixed-rate systems cannot survive a long depression in a modern democratic society. Mr Major argues that all the pain, the bankruptcies, the unemployment is justified by the aim of zero inflation. Since the year 1660 - even under the gold standard - zero inflation has existed for precisely three years - in the mid-1850s - and the ERM will certainly not take us back to that.

The ERM is probably being tested to destruction. So is the Maastricht treaty. The Danes have already rejected it. In September, the French will have an opportunity to shake their fists at the storm clouds in their referendum to endorse it. Perhaps they will vote 'yes', perhaps not. The House of Commons will not vote on Maastricht for many months - the Conservative Party conference will certainly savage it, and the ERM as well. If the ERM does explode, Maastricht will be meaningless.

We are living through a world economic crisis, more severe in some places than in others, but like nothing the world has known since the Thirties. The Europeans have repeated that decade's mistake of deflating in a depression; they will regret it bitterly. The US has not made that mistake, but is still suffering from the world crisis and has a worse debt problem than Europe. The crisis will eventually resolve itself, leaving much damage in its wake. But where are the political leaders who have even begun to take its measure?

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