Hamish McRae: We do not need to be slaves to US business models

'An analysis that is a robust statement of liberal values'

What kind of political/economic environment should businesses plan for over the next few years? The business community has an uneven record at calling politically-led change. Look at the way US and continental investment banks expanded in Japan in the late Eighties, believing it would internation-alise its financial system, or how many multinationals plunged into East Asia in the first half of the 1990s, only to be hammered in the 1997 crash

What kind of political/economic environment should businesses plan for over the next few years? The business community has an uneven record at calling politically-led change. Look at the way US and continental investment banks expanded in Japan in the late Eighties, believing it would internation-alise its financial system, or how many multinationals plunged into East Asia in the first half of the 1990s, only to be hammered in the 1997 crash.

Most recently, many businesses underestimated the success of the French economy under Lionel Jospin. They felt the 35-hour week would undermine French competitiveness, but its flexible application has negated any adverse impact.

So what guidelines should wise businesses have in mind when making judgements or big investment decisions? What is the ideal model of a successful economy? Well, there is no simple answer but any executive trying to understand the complexity of the world economy would enjoy Adair Turner's new book Just Capital. His name will be familiar to many from his spell as director general of the CBI from 1995 to 1999. He is now vice-chairman of Merrill Lynch Europe.

What he has done is to explain that economies can be perfectly successful by following centrist policies. And these policies can be different in different countries: globalisation does not necessarily force conformity. Applied to two practical issues, it follows that, for example, Europe need not follow the US low-tax model, or that internet commerce will not destroy the ability of countries to raise money by VAT. So Europe can keep its generous welfare provision and still be an economic success. But this is no "you can have your cake and eat it" message. The nub of his argument is that different countries can chose different frontiers between central provision of goods and services and individual purchases of them. But their people have to be prepared to pay the taxes to fund these.

Nor is it a manifesto for New Labour's "Third Way", "stakeholders" and "commutar-ians", the idea that companies should be "rooted in their communities" and not simply try to run their business as profitably as they can. No, companies should make profits, obey the law and pay their tax. Government should set the law and provide the social services.

Many people, in Britain and on the Continent, will be comforted by all this, for the book is a robust statement of decent liberal values. The people who might feel irritated will probably be Americans, particularly those close to the new Administration. Adair says: "The biggest threat to America's ability to create a more humane form of capitalism lies not in the actions of individual businesses downsizing their workforces, but in a political system which gives too much influence to specific businesses opposing valid environmental and social objectives."

The useful message to American business is that other countries do not need to follow the US model slavishly to be successful. The more thoughtful US businesses are good at adapting the way they operate to suit local conditions and values. Those that fail often do so because they assume the rest of the world thinks like America.

Perhaps the nicest part of the book is the debunking element. Thus the author reminds us of the way in the early Nineties a part of the UK establishment thought we should adopt the Japanese version of capitalism. He notes the similar adulation of the East Asian tigers and the internet revolution by business leaders at Davos forums, just before both booms crashed to earth. He does not, understand-ably, debunk the support the CBI gave for the euro, support dumped when it became clear that not joining was, if anything, helping British industry, rather than damaging it. But in general, his exposure of the rubbish people say is fair and fun.

And the weakest part? It is that this is a static picture: the economic world of today, seen though the eyes of a thoughtful and intelligent observer of the Nineties. It is a beautiful piece of conventional analysis.

He does not, for example, tackle the dynamic issues created by Europe's ageing population, the main reason why some of us believe the European social model is not sustainable. Nor does he examine what a world with falling prices might resemble, if global deflation does take hold. And he underestimates the threat to government revenues from mobile capital, mobile businesses and increasingly mobile talented people.

Nor does he put the period that we have just experienced in the long perspective of history ­ the parallels between the last years of the 20th century and the last years of the 19th. Both were a time of rapid technological advance, enormous international flows of trade and investment, a common economic ideology ­ and weak global political governance. Look what happened after that.

The messages that business people should take is that getting global politics right matters to them; that different countries will choose different versions of the standard model of market capitalism; and that we all get things wrong. That last one is the most useful of all.

¿ 'Just Capital ­ The Liberal Economy' by Adair Turner, Macmillan, £20